Open Text Corp (OTEX) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Hummingbird, Limited second quarter results conference call. [OPERATOR INSTRUCTIONS]. I would like to remind everyone that this conference call is being recorded today, Tuesday, May 9th, 2006 at 5 p.m. Eastern Time. I will now turn the conference over to Mr. Barry Litwin, President and Chief Executive Officer. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thanks for joining us today. I'm joined by Inder Duggal, our CFO. I'm very pleased with our solid performance in Q2. We had another quarter of stellar growth with total revenues up 18% from Q2 last year, driven by 22% year-over-year growth in our Enterprise Content Management business. We generated $11 million in operating cash flow and finished the quarter with over 94 million in cash on hand, and adjusted EPS was $0.34, in line with our guidance.

Our success in Q2 is a direct result of the investments we have been making to focus our development, marketing, and sales initiatives around high-value solution offerings. I am pleased to report that our Solutions initiatives are continuing to yield encouraging growth trends and represent an important growth engine for the Company. These vertical and horizontal solutions continue to differentiate Hummingbird from our peer group of competitors and we are opening up new opportunities across multiple verticals.

I’d like to spend the next few minutes giving you an overview of our business by vertical. In government, Hummingbird had an excellent quarter in the government vertical. We continue to have success across all levels of government and jurisdictions around the world. Hummingbird has developed a significant number of reference accounts drawn from an ever growing list of 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 that our efforts to generate business at the state and local level in North America and the UK are paying off. We expect our momentum in the government sector to continue both with our core enterprise content management offering and our targeted packaged solutions tailored for the government.

In Q2, we announced that Hummingbird had achieved certification with the Victorian Electronic Record Strategy, or VERS, an essential standard for records management software solutions utilized by Australian government agencies and businesses. This certification adds to Hummingbird’s comprehensive list of records management software certifications which include the National Archives, or TNA specification in the UK, and the DOD 1550.2 standard, a required standard for records management solutions used by the U.S. Department of Defense and other U.S. federal agencies.

With VERS certification, Hummingbird’s Records Management Solutions are among the industry’s most widely tested and certified. Increasingly, government entities and businesses are implementing electronic records management practices. These organizations continue to rely on Hummingbird to meet stringent records management standards so they can meet regulatory mandates and reduce compliance risks. In the quarter we announced two important wins at the state level in the United States with the Tarrant Regional Water District, a subdivision of the state of Texas, and the Georgia Municipal Association, an organization that represents the over 500 municipal governments in Georgia. In addition today, in addition yesterday rather, we announced a web content management win with the Atlanta Regional Commission.

Hummingbird continues to have success in the legal vertical by growing existing customer relationships and generating new businesses with leading law firms worldwide. During the quarter we celebrated the 12th anniversary of Hummingbird’s Legal Key Practice Support System, the market leading proactive compliance solution for the world’s foremost legal firms. Legal Key Solutions are widely recognized as the industry standard and Hummingbird continues to maintain its significant lead in the legal marketplace for proactive compliance solutions. I’m proud to report the Hummingbird’s Legal Key Practice Solutions were awarded best of breed system of the year at the 2006 Legal technology Awards hosted by Legal Business Magazine publishers, Legalese.

The world’s largest law firm, nine of the top ten legal firms globally, over 60% of the AMLAW 100 and over 70% of the AMLAW 50 have invested in Hummingbird’s solutions to deliver unrivaled service to their clients while insuring the very highest standards of compliance. Also during the quarter we launched our Hummingbird Enterprise for Legal Compliance Checkup, a screening program developed to help law firms identify gaps between policy and practice that could potentially expose both the firm and their clients to risk. Our goal with the Compliance Checkup Program is to foster a dialogue with firms to help educate them about the importance of uniting people, processes and technology to proactively address compliance issues and successfully balance firm productivity and profitability goals with risk mitigation.

Our unique high value proactive compliance solutions address fundamental challenges facing today’s global law firms by delivering an end to end compliance platform which seamlessly integrates new business intake, records management, document management, conflicts resolution, and docketing systems from matter inception through the final disposition. I’m pleased to report that our focus on delivering compliance solutions is continuing to help us gain traction in the legal verticals.

The financial services market continues to be an important growth vertical for Hummingbird. In fact, revenue from financial services has grown considerably as a percent of total revenue over the last two years. We continue to invest in developing enhanced capabilities and related marketing programs to serve 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 and Investment Banking solutions.

During the quarter we announced that Webster Bank had chosen Hummingbird Enterprise for Contract Management. This is an important win as it demonstrates our success in selling into a target vertical market with a horizontal solution offering. Webster Bank invested in Hummingbird's Contract Management solution to capture and proactively manage its contracts. Webster Financial Corporation manages 17.8 billion in assets and provides business and consumer banking services through 157 banking offices and 304 ATM machines in northeastern United States.

Let me take a moment to provide a quick update on the RedDot front. The strategic importance of the RedDot acquisition has been affirmed with considerable early cross-selling success. During the second quarter, we continued to experience significant traction, closing deals with Hyatt, Estee Lauder and Yamaha, among many others. The integration of the RedDot business continues. Collaboration in the field has been exemplary and our customers are embracing the new web content management capabilities at Hummingbird Enterprise. I’m pleased with our considerable early success at leveraging joint resources and combined local customer base to drive the revenue synergies we anticipated at the time of the acquisition.

Allow me to give you an update on our partnership with Microsoft. At our global summit event in the quarter we announced an expanded strategic relationship with Microsoft to further enhance technical integration, provide early support for next generation Microsoft products, and to provide closer field alignment in delivering high value content lifecycle management solutions to our mutual customers. Microsoft owns the desktop for a significant majority of organizations in our target verticals. Our strong heritage as a longstanding Microsoft partner and alignment of our respective R&D and field organizations allows Hummingbird to continue to deliver the best integration with the Microsoft Office Suite and share point. This is a significant advantage for our customers as it allows them to transform the Windows based desktop into a solutions enablement platform without requiring users to leave the familiar Microsoft user interface.

The tight integration of Hummingbird Enterprise and the Microsoft platform allows customers to preserve and maximize the value of their Microsoft IT investments while enhancing the user acceptance of Content Management solutions due to ease of deployment and ease of use. This enables Microsoft and Hummingbird customers to accelerate solutions delivery, mitigate risk, improve efficiency, and utilize business content as a powerful competitive advantage.

During the quarter we announced the formation of the Customer Advisory Board to enhance the way we serve and support the user community across all of our markets. The Advisory Board is modeled after Hummingbird’s highly successful legal CIO advisory board that has successfully steered the direction of our industry leading Hummingbird Enterprise for Legal Solutions set. The Board includes customers based in North America and Europe, and Asia Pacific representing a balance between smaller and larger organizations and is comprised of members from a combination of vertical markets including all levels of government, financial services, energy, utilities, and manufacturing. The board’s broad reaching industry expertise will help us to better prioritize user requirements and serve as a valuable resource in the development of new, innovative business solutions while expanding our capabilities and growth opportunity across multiple markets.

Our global summit event during the quarter, Summit 2006, was our best and most successful summit to day. We achieved record attendance and garnered significant coverage from the media. Over 1,000 customers and partners from over 23 countries attended the event that took place in Miami, Florida. Attendees were comprised of decision makers across all targeted industry segments.

And now I’ll give you some statistics for our deals over $100,000. During Q2 we booked 79 deals over $100,000 totaling 19.5 million in revenue. We continued to experience ongoing success in our ability to compete for and win larger deals. We believe that this is due to our highly focused sales and marketing efforts in our targeted verticals, our highly-structured solutions sales initiatives, and the proven foundation of the Hummingbird Enterprise platform. 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 involve risk and uncertainties. Actual results could 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 the 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 this.

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 here. The following are a few highlights that summarize the results of the current quarter, after which I will discuss the detailed results of our operations. Sales for the second quarter were 64.2 million, 18.3% higher than 54.3 million in the second quarter of last fiscal year. Hummingbird Enterprise revenues were 46.7 million, while Connectivity sales were 17.5 million. Hummingbird Enterprise sales were 22.3% higher than the second quarter of last year and 1.4 million higher than the first quarter of the current fiscal year.

Total operating expenses this quarter were 48 million, excluding stock option expense, restructuring and other charges and amortization of other intangible assets compared to 42.7 million in Q2 of fiscal 2005. EBITDA was 8.8 million, compared to 6 million in the second quarter of last year and 8.3 million in the first quarter of the current fiscal year. Adjusted net income in the current quarter was 5.9 million, compared to 3.7 million recorded a year ago.

Operating cash flow in the current quarter was 10.6 million. Cash was 94.3 million. Deferred revenue continued to increase quarter-over-quarter, to 80.5 million in the second quarter, up 4.8 million from the first quarter in the current fiscal year, and higher by 12.7 million from a year ago.

I will now get to the details of the operation in slightly more. As mentioned earlier, sales for the current quarter were 64.2 million. Revenues from Hummingbird Enterprise were 46.7 million, an increase of 22.3 million from the second quarter of last year, and 1.4 million higher than the first quarter of the current fiscal year. In the current quarter, the Hummingbird Enterprise accounted for 72.7% of the total revenue, compared to 70.3% in the same quarter last year. Revenues from Connectivity were 17.5 million compared to 16.1 million in the second quarter of last year. Product revenues, Connectivity and Hummingbird Enterprise, were at 26.9 million, 3.7 million higher than 23.2 million in the second quarter of last fiscal year.

Services revenues were 37.3 million, an increase of 6.2 million from a year ago. Revenue breakdown for the major geographical regions for the second quarter of 2006 were Americas at 34.3 million, Europe at 24.9 million, and rest of the world which is $5 million. In the current quarter the gross profit was 56.1 million, which is 87.4% of sales, compared to 47.8 million, which is 88.1% of sales in the same quarter of last year.

Sales and marketing expenses were 29.1 million, which was 45.3% of sales, compared to 25.2 million from the second quarter of last year which was 46.5% of sales. R&D expenses were 11.8 million in the current quarter, compared to 11.7 million from a year ago, and 11.5 million in Q1 of ’06. As a percentage of sales, these expenses were 18.3%, down from 21.6% in the same quarter of the previous year.

G&A expenses were 7.7 million in the current quarter, including stock options compensation, as this was the second quarter for following the new accounting standards. Excluding stock compensation, G&A expenses were 7.2 million, compared to 5.8 million in the second quarter of last year. As a percentage of sales, G&A expenses, excluding stock compensation were 11.2%, compared to 10.7% in the second quarter of fiscal 2005. Restructuring and other charges were 693,000 for the quarter.

Total operating expenses, excluding amortization of other intangible assets, restructuring and other charges, and compensation relating to stock options were 48 million, up from 42.7 million in the same quarter last year. The increase in expenses were mainly due to inclusion of RedDot expenses and SOX implementation costs in the current quarter. As a percentage of sales, total operating expenses were 74.8%, compared to 78.8% in the same quarter of the previous year.

EBITDA, excluding stock compensation expense, was 8.8 million, 13.7% of sales for the current quarter compared to 6 million which is 11% of sales in the second quarter of the prior year and compared to 8.3 million for Q1 ’06 which was 13.4% of sales. Amortization of other intangible assets was 5.4 million, up about 900,000 from Q2 of last year. This is mainly due to RedDot inclusion. Interest and other income consists primarily of net interest income. In the current quarter, income tax recovery was $2.7 million.

Overall, the Company reported a net income of $4.9 million and basic and diluted earnings per share of $0.28 for the quarter, compared to a net loss of 1.2 million and basic and diluted loss per share of $0.07 for the second quarter of the previous year. Adjusted net income, which excludes amortization of other intangibles, restructuring and other charges, compensation relating to stock options, all net of related taxes and losses carried forward and utilized and utilized carry forward research and development investment tax credit and expenses were 5.9 million for the quarter, compared to 3.7 million from the same quarter a year ago.

Adjusted diluted EPS, based on adjusted net income, was $0.34, compared to $0.21 in the second quarter of last fiscal year. Adjusted diluted number of shares for the quarter was 17.4 million compared to 17.6 million in Q2 of fiscal 2005.

Just to give a little bit more information on the 6 months results, revenue for the 6 months ended March 31, 2006 were 126.3 million, an increase of 16.8% over the previous year. Revenues from Enterprise Solutions were 92 million, up 23% from the 6 month period last year and accounted for 72.8% of year to date revenues compared to 69.2% last year. Revenues from Connectivity were 34.3 million compared to 33.4 million for the same 6 month period last year. The product revenues for both the product lines were 52 million compared to 45.5 million in the 6 month period for the last year. Services revenues were 74.3 million, an increase of 11.6 million over the same 6 month period a year ago.

The geographical breakdown of the revenues for the first 6 months of fiscal 2006 were Americas at 66.3 million, Europe at 51.8 million, and rest of the world at 8.2 million. Net income for the current 6 months period was 5.5 million resulting in diluted earnings per share of $0.32 compared to net loss of 2.9 million and diluted loss per share of $0.17 for the first 6 months of fiscal 2005. Adjusted net income for the 6 months ended March 31, 2006 was 11.5 million compared to 9.8 million for the first 6 months of last year. Adjusted diluted earnings per share for the current 6 months is based on adjusted net income of $0.66 compared to $0.56 for the prior year 6 month period.

Coming to the balance sheet, total assets were 399.4 million, compared to 385.9 million as at the end of previous year. Accounts receivables were 69.9 million, down from 71.2 million at the end of the last quarter. DSOs, based on trailing four quarters, was 100 days, down from 107 days at the end of last quarter. At the end of Q2, 2006, about 87% of our receivables were less than 120 days.

Fixed assets were 11.2, down from 11.3 million in the previous quarter. Goodwill and other intangible assets decreased to 203.5 million, from 208.4 million at the end of the first quarter for the current fiscal year. Goodwill at March 31, 2006, was 162.1 million.

Deferred revenue was higher, at 80.5 million, up from 75.7 million at the end of last quarter. At the end of last year, the deferred revenue was 67.8 million. Shareholder's equity was at 264.9 million, the compared to 259.3 million of the previous quarter. Cash was 94.3 million in the current quarter, up 8.5 million from 85.8 million at December 31, 2005. Operating cash flow for the quarter were 10.6 million. Income tax recoverables of 7.1 million were recorded as at March 31st, 2006, while there were income tax payables of 1.4 million as at 31st December 2005. Number of employees at the end of the quarter were 1,438.

For the benefit of those who may not have joined the call in time, I'll summarize the second quarter results very briefly. Sales were 64.2 million for the quarter, up by 9.9 million, or 18.3% from second quarter a year ago. Revenues for Hummingbird Enterprise were 46.7 million in the quarter, up by 22.3% from the second quarter a year ago. Product revenues for Hummingbird Enterprise were up by about 19%. EBITDA was 8.8 million. Adjusted net income was 5.9 million and adjusted earnings per share were $0.34. Cash was 94.3 million at the end of the quarter, up 8.5 million from the prior quarter with no bank debt. Deferred revenue at 80.5 million, has continued to increase over prior quarters. Operating cash flow was positive by 10.6 million, after restructuring payments totaling 1.2 million. Thank you. With that I’ll hand it over to Barry to give his final summary. Thanks again.

Thanks, Inder. I'd like to reiterate that we're pleased with our performance in Q2. 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 ongoing creation of shareholder value. Let me stop here, and we will take any questions you might have. Operator?

[OPERATOR INSTRUCTIONS]. Your first question comes from Scott Penner with TD Newcrest. Please go ahead.

Thanks. Inder, would you - - the 26.9 million of product revenue, can you break that out between the Connectivity and the ECM?

Scott, we’ve not been doing that, but I’ve given you some idea of where the product revenues for Hummingbird Enterprise have gone up in the quarter by 19%.

Right. Is it fair to say then that the Connectivity business as a whole is still running at about 605 product revenue?

Approximately, yes.

That’s fine. Then on the restructuring, can you just update us as to when you plan to complete these small little restructurings?

That should be done substantially in this year, but I think most of that could be done by Q3 of the current fiscal year.

Okay, and how much cash was spent on the restructuring this quarter?

About 1.2 million.

Okay, was that number about 6 million last quarter?

Approximately, yes.

Okay, and then just lastly again, Inder, if you could just run us through your how the foreign currency may have affected both the revenue and the operating income? Thanks.

Well there was some negative effect because of Canadian dollar strengthening. And it was approximately on the cost side we were up by roughly about half a million or so in the quarter primarily because of Canadian dollars.

And is your Euro exposure basically flat on a profit basis?

Pretty much, yeah. But there was a little bit of effect in Europe as well, but nothing worth talking about. It was a small amount here on the cost side. But substantially speaking on the other side it nets out there. It’s sort of a natural hedge, revenues and cost.

Okay. Barry, just quickly on the Microsoft front, can you just run us through again why your partnership or your level of integration with Microsoft may be deeper than some of the other announcements from some of the other vendors that we see?

Well I think part of it, Scott, is because basically our stock runs primarily on the Microsoft platform which is not really true for all of the competition that have announced this. So they can talk about as much integration as they want, but it’s going to be intrinsically more difficult if you’re running off on other platforms completely, Further, we do, I think in my opinion, the deepest integration even prior to this announcement in print as to Microsoft Outlook where I’d say the far majority of our customers live and spend all their days. What some of our competitors have been releasing this year is stuff that we essentially shipped about 3 years ago. So we’re moving forward quite actively. We’re involved in all the early programs at Microsoft. We have, my understanding is I’ve seen already some working prototypes for a lot of the stuff that is coming out of Microsoft. We even have shown it to some people already and we’re working closely with not only their partner and their product management teams, but with their R&D teams as well as far as cooperating and we think getting out the best mix of products out of anybody in this space.

Great. Thank you.

Your next question comes from Blair Abernathy with Clarus Securities. Please go ahead.

Thank you. A couple of things. I’m wondering if you have revenue by vertical this quarter?

Yes, if you can give me a second. Legal was 21%, government was about 34%, financial institutions was about 10%, commercial is 10% and rest is pretty broad across the various other verticals.

Okay, great. Thank you. In terms of you bought back a little bit of stock this quarter. How many shares did you buy back and what’s the availability on your buyback?

Availability is still the same about December I think. We had a total plan for about 1.5 million so we have enough room there and amount of shares we bought back were about 75,000 roughly.

Okay, and Inder, on your balance sheet there was an other payable number of $10 million. What is that?

That is the amount which we have accrued for RedDot. That was there from last year as well, I’m sorry, last quarter as well

Last quarter, not in September thought. Okay, so that’s a milestone payment?

Yes.

And is that going to be it for RedDot or any of the prior acquisitions in terms of earn out?

That’s an estimated amount. It’s not the final amount. So we have to, as per the agreement, we have to wait for the end statements and it will be determined after that and it will be paid. After that, there will be nothing out there.

So that’s the last one and an estimated amount. And is that paid this fiscal year or this calendar year? When do you expect to pay that?

Yes, I would say within this fiscal year.

Okay, great. Are you giving any sort of outlook for what you’re expecting for Q3?

Yeah, on the top line, roughly 65.5 to 66.5 and on the bottom line $0.35 to $0.37.

Okay, great. Thanks, guys.

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

Thanks very much. Good evening. What, in your solutions you’ve got a whole host of them now. Are they predominantly out for this fiscal year or are there still a whole bunch of other ones to come? The various contract management solutions and that sort of thing?

Yeah, some of the solutions have been bifurcated, so Contract Management is becoming much more honed in. When we released it, it was much more of a horizontal and what you’re finding, what we’re finding now, it we’re actually honing it down more so it will be Contract Management for various different offerings. There’s a couple more that we’re working on. I don’t want to give too much away, David, but we are still working quite heavily in the correspondence management, we’ve got the anti money laundering, or as some people call it, the money laundering solution. But there’s still quite a few solutions out there. And I think certainly the biggest attraction we’ve seen to date and reflected in our pipeline going forward that we can see is definitely in the arena of the contract management.

Okay. And so a year from now we wouldn’t see another 15 or so? It’s these ones that you’re concentrating on essentially?

No, we’re concentrating on some others, but I don’t think you’ll see 15 others.

Okay. So this is essentially - - I’m going to get to the question on R&D in a few minutes, but so essentially the heavy lifting is done here?

Certainly on the Contract Management and the Correspondence Management, yes. Now typically the way these things start is they don’t necessarily start the solutions in R&D They might start out in the field with PSO and an engagement at a customer. We might do it once and think it’s good. We might do it twice and see we’re starting to have some replicability there and that’s typically how we turn it into a solution. At some point it turns back into a solution group in both marketing and in R&D to productize the thing.

Okay, great. You’re highlighting the financial services market. You said that it’s now roughly 10% of vertical now. How would you characterizes the efforts here? Are they - - do you feel like you’re really gearing up and we’re going to see this 10% number start to climb in total or is it just going to track along with Hummingbird’s business in total?

No, I think you should see it climb. The trick is, of course, you want it to climb without taking percentage from any other place. But we still believe it should be going up. In our various different times what we have called financial has changes so much, so I think what you’re seeing now is really pure financial. At some times I think we lumped some insurance in there as well which I put back more or less in commercial at this point, the way we call it. But what we see is that, in certainly in the U.S. midsized banking, I think we really only started concentrating on that this fiscal year. And I think you’re going to see a lot of up tick there.

Are you in a position where you’re hiring sales reps specifically for the financial industry vertical?

We have hired a couple. We have not yet created a separate sales force but we do, because of certain key accounts, have a couple of people that are dedicated pretty much exclusively to financial.

Okay, great. Thanks. Inder, I guess a question on - - so R&D and G&A and the trend spending - - should we, through your restructuring efforts, should we expect any kind of reduction on a sequential basis on either the G&A or the R&D line? Or is this kind of the base spending level now?

R&D will be pretty much be the same. Let’s not forget that yeah, we have had a reduction, but at the same time we need to continue to keep pace with the rest of the industry and keep increasing salaries as well. Plus the benefit costs worldwide basis is going up as well whether we like it or not because of all the insurance industry. And G&A costs, only reason that would go up is because of SOX. Otherwise I don’t see any reason for that to go up.

Okay. Good there. You answered the share buyback. Deferred revenue went up nicely in the quarter. Usually I guess the trend has been you kind of work it off throughout the year. But obviously things are going well if it’s going up. Do you expect that trend to continue higher next quarter or?

Yeah. If you go back to last, I would say - - I don’t know, last 8 or 10 quarters, I think it’s sequentially been going up. Some time it goes up more and some time it goes up less. So to say that it will go up by $5 million next quarter, I don’t think so. It all depends in terms of how the deals close out and also because of revenue recognition sometimes are we able to recognize all the revenue in the quarter or not. So my expectation is that its expected to go up but it’s difficult to quantify that.

Okay great, thank you very much.

[OPERATOR INSTRUCTIONS]. Your next question comes from David Wright with BMO Nesbitt Burns. Please go ahead.

I’ll go again if there’s nobody else. Do you plan to at some point sort of break out partner influenced revenues or anything like that? Is that a number that you’re tracking?

Yeah, David, I can give you some color on that. The only thing is, there is a lot of variation to that. We go by strictly tracking how much is direct and indirect but that has a lot of connotation under that. For example in this quarter, Connectivity direct revenue was 39% and indirect was 61%. And Solution was direct at 59%, indirect at 41%. But one needs to see what is happening underneath this. Just to give you an example, in Connectivity indirect, there are a lot of what you call corporate resellers through whom we have to go if we have to deal with very large customers. Now the question is, for this level we are booking that as indirect, but in my mind that is strictly direct business. That’s only our meter because the customer wants their orders to be routed through those corporate resellers for illustration purposes. And on the solution side, another connotation is that a number of times when we’re working along with the partners, we are bidding for the deals together. And sometimes the orders come to us and we outsource or whatever else you call it to the partners to do the services work. But sometimes the customers give us the orders for licenses separately and they will give the orders for services separately to partners. So on the Solution side, indirect if I have to take the number, that number would be much higher than 41% if we are talking about how much business do we do with the partners along that.

Okay, very good. Could you give us any kind of trend there in terms of last quarter and year ago for those 4 numbers?

Sure. For year ago in the same quarter for last year, direct Connectivity was direct 31%, indirect was 69%. And Solutions direct was 69% and indirect was 31%.

Great. And what’s your employee count and sales rep count if you could give that out?

Total employee count was 1,438 and sales numbers are 414. R&D is at 389, these are two other major numbers.

And as far as your restructuring effort goes in the headcount that you have, does it change much where there’s still people to - - ?

No, not much. There is a very small number which is remaining in that restructuring that may be affected, but I think most of it is already done.

Great. Okay, thank you very much.

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

Barry, in that big deal count, were there any $1 million deals or maybe you could give us a flavor of what were the largest deals in there?

There were 3 million dollar plus deals, Scott.

And were they Solutions? Were they Platform deals?

Two of them were on Solutions, one of them was on the Connectivity side.

And I also wonder, Inder, if you can just tell us again what the percentage of the license revenue on the ECM side from new customers is? It’s a number you’ve given out.

Yeah, it’s pretty much almost the same as what we had tracked down last quarter, it is roughly about 30% from the new customers.

Okay, that’s all. Thank you.

Your next question comes from Steven Li with Raymond James. Please go ahead.

Thanks. Barry, Connectivity has been stable recently. Do you expect more of the same in the second half or a bit more growth?

We always predict stability in Connectivity, Steven. I mean, whether there’s growth, as I’ve said many times before, I think depends largely on changes in hiring practices in large corporations within our base that uses Connectivity. Other than that, we see it as a stable market and we don’t see much that’s changed and we see it continuing along those lines.

Okay and the million dollar deal in Connectivity. Was that a new customer or an existing one?

I think it was existing.

Okay, thanks.

Your next question comes from Blair Abernathy with Clarus Securities. Please go ahead.

Hi, guys, I though I’d jump back on here again. Just a couple of things. In your slide presentation, Barry, there’s 10 solutions listed there. Are you actively marketing all those solutions today? And what would be the top 3 that you’ve got traction with out there?

Well, I would say that number one is certainly Contract Management. Figurative Information is very big with us in the UK. Deal Management, Anti Money Laundering are all various financial solutions that we’ve pushed out a number of times. So all of these have - - and Agenda is going out primarily in the government sector. They’re all solutions, they’re are all out there. They’re all out there in various degrees of out of the box or actual customization at the customer’s site.

Okay, and how many, have you got a rough figure of how many solutions are installed out there? How many installations have you got versus a year ago?

I don’t have an absolute count for you. I’ll try to get it moving forward, but I can tell you that based on my calls with sales people, I can tell you that there’s a lot more installed now than there was a year ago.

Okay, great. And just on the, I don’t know if you touched on it or not yet, but on Veritas and the progress with that partnership for this quarter?

Well it’s Semantic these days.

Yeah, sorry. Although their website is still Veritas.

The way we’ve been following it is through KVS to Veritas to Semantic. We’re working well with them. I think we were just at some major show of theirs this week. We’re still working on integration and we’ve still got a couple of joint customers that have locked down that are certifying that the integration goes exactly the way they want. And we still have high hopes for this moving forward. One of the few customers that we still put a lot of effort into. Or partners rather, sorry, that we put a lot of effort into.

Okay, still working at that one. And any comments at all on the competitive landscape? Any changes or what you’re seeing out there?

I don’t think anything much is changed. Same cast of players. Nobody new, nobody less. Honestly, I just don’t see much changing out there in that landscape. We get to see the same people we’ve always seen in the various different verticals that we’re in.

Okay. And some of the other competitors have been talking about pricing pressure on maintenance. Do you have any comments to that effect?

No. Not really. There’s occasional deals, always have been, which have some pricing pressure, but I don’t think I’ve seen much change, certainly over the last quarter.

Okay, great, thank you.

Your next question comes from Aya Oldfield with Canacord Adams. Please go ahead.

[Inaudible] Could you just comments about the current upgrade cycle and if it’s going the same as historically.

I’m sorry, we really can’t hear what you’re saying, sorry.

Sorry, I was wanting you guys to comment on your current upgrade cycle, your current customers and just let us know if it’s going basically the same as it has historically or has anything changed? Everything is - - ?

You mean upgrade to Hummingbird Enterprise 2005?

Yeah, no, your new database software. Records management and your new version.

Okay, our latest version - - as we usually predict upgrades tend to come when customers, you know, in this space, when a customer has a deployment to a large number of users, there’s usually a - - these upgrades are synched, not on a yearly basis but in line with when they want to actually upgrade other things on the desktop as well. We do see it moving it forward and we see what we’re doing mostly with the newer version is, of course, pushing it into newer customers rather than go back in and upgrade the existing base. Most of the customers that by the way will be upgrading, are on maintenance revenue streams anyways, which means it’s theirs, we’re not actually making additional revenue from that upgrade.

Okay, so you’re not seeing any new changes, any new pressures or anything there.

No.

We can’t hear you at all, so can you please speak a little bit louder?

Maybe it’s my connection, that’s fine. That’s all I have, thank you.

Your next question comes from Robert Moses with RGM Capital. Please go ahead.

Good afternoon. Just had a question about margins. Obviously we’re pleased and I assume you are as well, with revenue and cash flow. And there’s been a lot of investment in R&D and sales and marketing . Some of that varies probably with RedDot which is skewing the margins a bit lower. But would you expect, if we can continue to see revenue growth at the pact that we’re seeing to eventually get higher EBITA margins and is that something that needs to happen at RedDot reflecting the profitability or better margins for those total company margins to improve?

Robert, as we have discussed many of times, that our intention is to increase the EBITDA margins and as we go along, we feel that these will become better.

And is that kind of returning to the kid of EBITA margins of 15, 16%? I mean, is that something as we look out into the next fiscal year or even something we can kind of move towards a couple of quarters out?

Well a couple of quarters, I don’t know about that because there are other pressures around stocks and all that, but yeah, next year or so, at some point of time on a quarterly basis we would possible get to those numbers.

Fantastic. And do you focus on sales and marketing to license revenue? I think if I backed into your license revenue number it was something like 26.9 I guess in the quarter. And your sales and marketing dollars were about 29.1. Is there any relevance to kind of how you look at your sales force and sales and marketing as it relates to your license revenue? Or is that not a metric you focus in on a whole lot?

No, we do that internally again as we have discussed it in the past, but at this point of time, we just have to wait and see how the sales ramp up. And as the sales ramp up somewhat better than where we are today, I think the last few quarters we have been doing reasonably well. But if the sales ramp up somewhat better than this, we would see that first of all the margins would go up and second thing is possibly relationship to the license revenue and the sales expenses would become let’s say almost equal. Or for that matter, the sales and marketing expenses at some point of time would get to less than license revenue.

And so the sales and marketing dollars is, I guess, a couple of things. One is try to expand the verticals, growing your sales force, as well to some extent RedDot probably has some influence there as well?

It does. But you know one other thing which I did want to mention, the sales and marketing expenses also has a lot of expenses built in not necessarily only for the license revenue but for related to maintenance and so maintenance, not necessarily services as well. And the way we run our business is that sales people are not by carte blanche given commissions only on the license revenue. Certain sectors or certain geographies, they are built on total revenue including maintenance revenue as well. Because we do feel that we, the maintenance revenue is equally, but I should say fairly important as well compared to the license revenue.

I would agree. I would think that And I guess at the end of the day, you do expect that gap between the two to close, but it’s, there are other factors that go into it as well I guess is your point.

Yes.

Fantastic quarter. I appreciate your answers.

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

Barry, I’ve got to ask - - last quarter you deferred a look on the year until you had a better sense of how the year was shaping up. Now after Q2, can we get a guidance from you on the full year?

No, I think for now we’re just going to give guidance for the upcoming quarter, Scott. I mean, we’ve got - - the way we’re internally looking at things now, I think it’s just clearer for us than looking out a number of quarters So who knows? That may change later but I thin for now we’re just going to stick with giving guidance for the quarter.

That’s fine. Thank you.

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

Well, everybody, thank you very much for joining us today. Again, we’re all pleased with our results, we hope you are too, and thanks for taking the time to join us and we’ll talk to you again shortly. Bye for now. Thank you.

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