Open Text Corp (OTEX) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Open Text Corporation fiscal 2008 fourth quarter financial results 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. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on Tuesday, August 19, 2008, at 5:00 p.m. Eastern time.

I will now turn the conference over to Mr. Greg Secord. Please go ahead, sir.

Thanks, everyone, for joining us. Today, we will be discussing our financial results for the fourth quarter and fiscal 2008, which was released earlier this afternoon. With me today are John Shackleton, our President and Chief Executive Officer, and Paul McFeeters, our Chief Financial Officer.

And as with previous calls, after our prepared comments, the operator will poll for questions. We'll get started in a moment, but first I'll read our disclaimer. During the course of this conference call, we may make projections or other forward-looking statements relating to the future performance of Open Text or its subsidiaries. These oral statements may contain forward-looking information, and actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information.

Certain material factors or assumptions were implied in drawing a conclusion or making a forecast or a projection, as reflected in the forward-looking information. Additional information about the material factors or assumptions that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were implied in drawing a conclusion or making a forecast or a projection as reflected in the forward-looking information are contained in Open Text Form 10-K for the fiscal year ended June 30, 2007, and in the press release that was issued earlier today.

Now I'll turn the call over to John Shackleton.

Thank you, Greg. Good afternoon, everybody, and thank you for joining us. Before we review the financials, I'd like to comment on our performance for the fiscal year. Clearly, Q4 was an excellent end to what was the most successful year in the Company's history. We beat our own internal goals, generating record revenues, profits and cash flow for the fiscal year.

Open Text employees work very hard throughout the year to expand our global presence, and we made great progress in development, sales, and in our back office systems. Congratulations are in order for all our employees.

I'd also like to thank our customers and partners for their tremendous support throughout the year. I'll provide greater detail on the quarter in a few minutes, but first I'll hand the call to Paul for a detailed review of our financials.

Thank you, John. Turning to the financial results for our fourth quarter and fiscal year 2008, total revenue for the quarter was $200.3 million, up 14% compared to $175.2 million for the same period last year.

License revenue for the quarter was $68.2 million, up 15% compared to $59.2 million for Q4 last year. Maintenance revenue for the quarter was $95.1 million, up 16% compared to $82.2 million last year. Professional services revenue in the quarter was $37.1 million, up 10% compared to $33.8 million in the same period last year.

We reported fourth quarter adjusted net income of $33.3 million or $0.63 per share on a diluted basis, up 25% compared to $26.7 million or $0.52 per share on a diluted basis for the same period a year ago.

Cash flow from operations for the quarter was $44.6 million, up 56% compared to $28.6 million in Q4 last year. Gross margin for the fourth quarter, before amortization of acquired technology, was 73.9% compared to the 73.3% in the fourth quarter last year.

Pretax adjusted operating margin before interest expense was 24.1% in the fourth quarter compared to 25% in the same quarter last year. With respect to our adjusted earnings, the tax rate for the quarter is 30%. Actual cash taxes payable continue to be in the 15% to 20% range.

Net income for the fourth quarter in accordance with GAAP was $27.3 million or $0.51 per share on a diluted basis compared to $8.2 million or $0.16 per share on a diluted basis for the same period a year ago. The fully diluted share count for the quarter was approximately 53.1 million shares.

As of June 30, 2008, deferred revenue was $176.9 million compared to $181.9 million as of March 31, 2008. Accounts Receivable as of June 30 was $134.4 million compared to $135.7 million on March 31, 2008. Days sales outstanding was 60 days as of June 30 compared to 68 days for the previous quarter and 66 days for Q4 of last year.

The term loan balance at June 30, 2008, was $294 million, which we reduced from $390 million on October 2006, through scheduled repayments of $6 million and accelerated payments of $90 million.

Turning now to our fiscal 2008 results, total annual revenue was $725 million, up 22% from $595.7 million in fiscal 2007. The license revenue for the fiscal year was $219.1 million, up 20% compared to $182.5 million last year, while maintenance revenue was $363.6 million compared to $287.6 million last year. For the full fiscal year, product license and product maintenance revenues accounted for 80% of annual revenues; the remaining 20% related to our professional services.

Adjusted net income for the fiscal year 2008 was $107 million, up 44% compared to $74.3 million for fiscal 2007. Adjusted earnings per share on a diluted basis of $2.03 was an increase of 39% over $1.46 per share on a diluted basis for fiscal 2007.

Gross margin for the fiscal year, before amortization of acquired technology, was 73.7% compared to 72.2% in the prior year. Pretax operating margin, before interest in stock compensation, was 24.3% for fiscal 2008, which is up from 21.8% last year. The overall tax rate for adjusted earnings is 30% compared to 32% in the prior year.

On a GAAP basis, we reported net income for the year of $53 million or $1.01 per share on a diluted basis compared to a net income of $21.7 million or $0.43 per share in fiscal 2007. Net cash flow from operations for the fiscal year was $166 million, up 50% compared to cash flow from operations of $111 million in fiscal 2007.

The effect of foreign currency on our net operating results was a positive $0.03 per share. As we have stated in the past, Open Text is very closely managed in income and expenses for euros, British pounds, Swiss francs, and other non-US currencies. We are mismatched primarily in Canadian dollars, which represent 7% of total revenues and 25% of total expenses.

Referencing our pretax adjusted operating margin model, we remain confident in our plans to maintain expenses in the 14% to 16% range for development; 24% to 26% range for sales and marketing; 9% to 10% for G&A; and 2% for depreciation. This will generate a pretax adjusted operating margin of 20% to 25% and, as demonstrated in our results throughout the fiscal year, we expect to continue in the upper end of that range. A copy of our business model is available on our website as part of the investor PowerPoint presentation.

Now I'll turn the call back to John.

Thank you, Paul. As Paul mentioned earlier, we're very pleased with our Q4 results and with our annual results. In Q4, Europe was responsible for 50% of the revenue; North America, 45%; with the remaining 5% coming from Asia-Pac. We saw particular strength in Europe, driven by demand for compliance-based solutions, but we're also happy with our sales performance in all regions and all verticals.

As Paul mentioned, we generated $68.2 million in license revenue in the quarter, growing 15% over last Q4. Of this license revenue, 23% came from new customers and 77% from our install base. On an annual basis, our license revenue grew at 20%, exceeding the industry analysts' forecast of 8% to 13%. As Paul mentioned, we had a little help from currency, but still our normalized growth rate was roughly in the 13% to 15% range.

In Q4, we saw license revenue, broken down by vertical, as 36% from high-tech manufacturing, 15% from government, 11% from financial services, 9% from energy, and 5% from pharmaceutical and life sciences.

Taking a closer look at the transactions in the quarter, we had eight transactions over $500,000 and an additional seven transactions over $1 million, with notable wins in financial services and high-tech manufacturing. This influenced the average transaction size to approximately $300,000, which was slightly up from prior quarters.

Examples of significant wins in the quarter include Pacific Life Insurance, who is expanding its existing Livelink implementation with the addition of Livelink ECM content Life Cycle Management, email management, SharePoint integration, and file server archiving. The solutions provide Pacific Life Insurance with a comprehensive enterprise-wide ECM suite.

Fender Musical Instruments, the world's number one maker of stringed instruments, purchased Livelink ECM content Life Cycle Management, a solution when combined with Livelink document access for SAP, provides Fender with end user access to structured and unstructured data to improve their business processes.

Lincoln Electric, a leading provider of advanced welding and cutting technologies, purchased Livelink ECM content Life Cycle Management, email management and monitoring file system archiving, and Livelink collection server. Their immediate goals were to reduce costs and increase efficiency in the areas of eDiscovery, document and records management.

From a sales operating standpoint, we closed the quarter with the combined sales force of over 259 quota-carrying sales execs. Given the strong market, we'll continue to invest more in our sales and marketing efforts.

SAP, Oracle and Microsoft all contributed to report increasing partner demand for solutions in archiving, records management, and compliance. License revenues from partners was approximately 30% in the quarter and 35% for the full fiscal year, which was in line with our targets.

An example of these partner-influenced transactions include a multimillion dollar deal with Microsoft and a European telco to streamline its IP operations and reduce costs by archiving SAP documents, and exchange server public folders on to lower cost storage devices, using Open Text's email archiving for exchange and file system archiving for SAP.

Keeping in line with our corporate strategy, we recently made two small acquisitions. First, we acquired all the assets of Spicer Corporation Division that specializes in file format viewer solutions for desktop applications, integrated business processes, and repro graphics. We acquired them for approximately $12 million. This transaction was effective July 1, 2008, and is not included in our Q4 results.

Secondly, we acquired eMotion from Corbis Corporation for approximately $5 million. The eMotion division will become part of Open Text Digital Media Group, extending Open Text Digital Media capabilities as part of its Enterprise 2.0 strategy. Again, this transaction occurred after we closed the fiscal year.

In the quarter, we announced that Open Text received the highest rating possible as a strong positive in analyst firm Gartner's 2008 Market Scope for Records Management. Gartner recommends that customers consider companies with this rating as a strong choice for their strategic ECM investments.

Building on our growing relationship with Microsoft, we announced that our Enterprise Live re-services offering has received the certified Windows server 2008 designation. The announcement demonstrates Open Text's continued leadership as an early supporter of the latest Microsoft technologies.

Further on the partners side with SAP, we announced Open Text Web solutions for use with SAP solutions. Our Web solutions complement the content management capabilities of the SAP NetWeaver portal helping organizations to easily apply business rules to their content, further allowing them to choose their audience, and helping them to ensure the right person gets the right content, at the right time.

We are also pleased to announce that Open Text received the SAP Pinnacle Award in the category of Software Solutions Field Engagement. SAP Pinnacle awards are granted to a select few SAP partners that have excelled in developing their partnership with SAP by providing high quality products, solutions, and services to customers.

On the event side, we hosted LiveLinkUp Europe, which was a big success with almost 2,000 attendees in three cities. We have published -- we established a new attendance with many key partners present, customer representing a good cross-section of industries. We showcased our ECM roadmap, including specific vertical and partner-based solutions.

As an illustration of the final stages of our product integration, we have announced the branding of our global user conference on Open Text Content World. This will be held in Orlando from the 17th to the 21st of November.

Turning now to our outlook for FY '09. Industry analysts are telling us that ECM should grow in the 10% to 13% range. And as we look at fiscal 2009, I feel confident that we will be in well within that range. Our revenue seasonality trends in the coming year should be similar to the seasonality we experienced in fiscal 2008, and we feel very comfortable with the current Street consensus for top and bottom line in Q1 as well as for the next fiscal year.

We're very well positioned for another successful year going forward. Now I'd like to open up the call for questions.

(Operator Instructions). Scott Penner, TD Newcrest.

John, you had mentioned last quarter, highlighted some of the activities you had in Web 2.0 technologies. I know one of the acquisitions was kind of based around that. Can you just give us an update, I guess, on that in general? And then some of your revenue diversity, whether compliance-related solutions are still around 60% to 70% of the licensed revenue?

Yes. That's right, Scott. There's a lot of interest we're seeing in 2.0; both in Europe and in North America, we're seeing interest in that area. And we're seeing a lot, particularly from our existing customer base, moving towards these solutions.

From a market standpoint, we're seeing about 60% of the revenue driven by compliance. We've also seen this slight change in the market in that a number of our customers are looking to expand their ROIs on their existing products.

So for example, interfacing to SAP or to Oracle, to Microsoft, where they are getting a better return on investment from those products by linking them with the Open Text product suite. So we have seen a slight change in compliance, but it is still in the 60% range.

And just as far as the $1 million deals go, [I guess seven] is the highest number in quite some time -- can you just -- a little bit more detail on how many of those were in connection with partners, whether there were any -- of those deals, whether there were any really sizable deals? And then of the $1 million deals that were not in connection with partners, what was driving it?

Yes, I would say between the partner involvement and us was about 50/50 on the big deals. Probably the biggest was partner-related with Microsoft. And it's probably geographically a 50/50 split. And from an industry standpoint, the biggest were in the high-tech manufacturing, and then the second would be actually financial services.

Okay. Just lastly for me is -- Paul, on the net interest expense, it looked quite a bit lower obviously than it has been for the past couple of quarters. Can you shed some light on what's in there?

Yes. When we originally did our loan, we put in a hedge for about 50% of the loan, at the time was [$190 million]. It goes down over time. It's a three-year hedge. Presently it's [$150 million], either where we did floating to fixed. Because of the floating to fixed hedge we have to do a mark-to-market, which is really a non-cash entry into our financials.

So what's been happening actually through the fiscal year is that we've been getting a mark-to-market charge for each of the previous three quarters. And now we have a mark-to-market positive, so we have a $2.4 million credit, if you will, in the interest expense line because of the adjustment in the obligation of the mark-to-market.

Now this obligation of mark-to-market will never be cash and it will all zero out by the end of the three-year term. But it has volatility from quarter-to-quarter. So that's the large reason; the interest income is up as well, about $0.5 million.

Okay, so the $2.4 million is the hedge adjustment. What was it for the year?

For the year, we would have had a charge for the year, accumulatively of $2.8 million.

Okay, that's fine. Thank you.

Paul Steep, Scotia Capital.

John, maybe we could talk a little bit license growth, just to follow on there, as to what's been really the driver of the strength throughout the year. Has a lot of it been through a combination of the existing upgrade cycle with DMX, the partner channel? Just trying to get a sense of the sustainability and the drive of that into '09.

Yes, I would say, Paul, both the things you mentioned. One is the partner program is obviously working. We are seeing strong pipeline from our partners. And in many cases, the partners are actually new customers.

On our existing customer base, we're seeing more towards, as I mentioned, looking for ROIs on the existing software where they're getting better returns, interfacing to things like SAP and Oracle or Microsoft. So it's probably 50/50 between those two.

In terms of the upgrade cycle, we're still -- I guess, last quarter you had some small comments about it. It's still early stages, you see it running throughout '09 into '10? Or where are we in that?

We certainly see a strong pipeline, certainly for the next six months we feel very confident. But the general feeling is certainly throughout the rest of the fiscal year, the analysts are saying pretty much the same thing -- a little bit soft, say, in North America but being made up in Europe and Asia-Pac.

And the final one from me, just for Paul -- the other income of [$11.3 million], fairly material change over there. Just wanted to see what items popped up there in the quarter just because it was sort of out of normal.

Yes, Paul, that's primarily due to foreign exchange. The effect of converting non-US functional currencies through our various subsidiaries can kick up actually reasonably large swings, either gains or losses on foreign exchange. And that's what that is, primarily.

Perfect. Thanks, guys.

Richard Tse, National Bank Financial.

John, just curious to see what you're targeting this year in terms of the partner contribution to your revenue? And I wanted to get a sense too on the partner side, would you say that all your sort of major partners that you've called out have sort of hit their stride? Or are we still fairly early in terms of their getting traction in their system there?

I would say that, Richard, that SAP is ahead of the others; obviously, we've had a longer relationship there. But we see very positive strides from Microsoft and see a good pipeline with them; but also with Oracle, as well. All coming up, but the last two are not as mature as obviously our SAP relationship.

So would you see that your partner contribution moving up to 40 plus percent this year?

My goal would be to see it at 40% -- in that range, yes.

Okay. And in terms of your cash flow, I guess, you previously paid down some incremental debt here. I think you're holding back on that. Can you enlighten us on why you're continuing to do that?

Yes, Richard, it's Paul. As we indicated in the past, if we feel that we see potential opportunities in the future for -- as we have generally been saying, tuck-in acquisitions, we think that's one reason not to accelerate the repayment. And the other, again, is we're at a below 6% rate. And today, to replace that debt would be somewhere between 7.5% and 8%. So we think again from the terms of balance sheet management, it's not bad to have the debt there, particularly at that rate.

Our loan covenant ratios, our debt to EBITDA is less than two times. It's just -- the coverage is well over eight times. So there's no real covenant risk to the Company. So those are really the three primary reasons we're leaving the debt just with the normal repayment terms.

Okay. And just one quick one, a final question here. If you look at Scott's question on the Web 2.0 products, you suggested that you're getting some traction here now. Would that be over and above what you're forecasting as your fiscal '09 internal numbers? Or is that baked in here already?

I would say that's baked in. As we look at the -- when we look at the total portfolio, that's what we'd see. But around those areas, we have seen growth in the 20% range in this past year. So it's going very well.

Okay, great. Thank you.

Mike Abramsky, RBC Capital Markets.

Just in terms of the deals and momentum, would you characterize this as an unusual quarter? Did you see -- is this kind of a trend that you are seeing now because of the momentum you're building on partnerships and on the direct sales force execution? Is this something that we can expect to continue through the rest of the year as you talked about you're comfortable with [that] sort of outlook?

The execution on the sales force is going extremely well. I think there has been -- some of the competition have been disrupted this past year and we've obviously benefited from that.

We just had our sales kick-offs and the very positive outlook; we've got some tremendous people. So I would see that progressing. We have invested in this past year in our partner programs. We've got some great people working and supporting our partners as well. So I feel pretty confident that this will continue.

I'm sorry, I jumped on the call late, but did you talk about whether any of those specific deals were done in partnership with either Microsoft or Oracle or SAP?

Yes, I mentioned the first -- the large deal, one of the seven, was with Microsoft.

And was that deal significantly over $1 million?

Yes.

Okay. Because I know you did I think a large deal with Microsoft two quarters ago. Can you tell us a little bit about why -- I think it was two, you can correct me -- can you tell us a little bit about why you're seeing that kind of traction and under what situations, given that obviously SharePoint is at the same time a competitive product?

So it's mainly where SharePoint is being used in an enterprise-wide, highly scaleable organization where we can enhance and help manage that product efficiently (multiple speakers) -- as well as in conjunction with SAP products.

So are those existing Livelink clients or new clients?

This was an existing client but in almost a new division, if you will.

Okay. And do you see SharePoint any time soon changing to address the kind of enterprise-wide scalability that you're able to fill at this time?

I believe that while it will improve in certain areas, we've been working with Microsoft, building joint product roadmaps, that we can continue to work for the -- certainly I'd see it three, five years plus where we can enhance and help them with their products.

Okay. I'm going to ask this because I think it's the elephant in the room, John, and you can choose to comment or not, I suppose.

The short position's obviously been a huge and constant factor. Is there -- you've now, I think, executed strongly eight quarters of beating the Street in a row; steady margins. Hummingbird has kind of closed successfully. Is there any issues there that you're asked about or that are related to that, that continue to dog it? Or is there any reason why the thing doesn't go away?

We cannot see a reason why. We've talked to many people about it. At the end of the day, we believe keep performing, keep putting the numbers up.

Okay, great. Thank you very much, John.

So the answer is, there's nothing there that we know of.

Okay, thanks.

Lawrence Rhee, Blackmont Capital.

Can you just add some color, Paul, on the cost side? On the sales and marketing side, was it just a little bit higher than what we were looking for? Were there any kind of costs in there that you would categorize as one-time in the operating expense side?

Yes, certainly. Because of both the successful license production and typically accelerations of year-end quotas, there would be a one-time commission charge that would normalize out in Q1 again next year. So, and in closing the large volume of transactions, you have other related expenses such as travel that will be up. So I think anything that you would identify as a -- I'll call it a blip up in sales and marketing, you'd see would normalize coming out into a new fiscal year.

And I think you would see it in most Q4s if you look back. It is not unusual, but there's nothing out of the ordinary for Q4.

But it's not a run rate increase. So it is largely due to one-time items.

Got you. And just -- could you just add some color -- obviously, the economic environment still remains shaky. Just add some color. Obviously, you guys had a great deal flow in the quarter, but just some color on the sales cycle process. Is it improving for you? Or how has it transitioned over the past couple of months?

This past certainly two quarters, I feel confident that our sales team are performing very, very -- they're being very productive; better than what I've seen in a long time. So that has something to do with it. I think also the -- as I mentioned before, some of the competition are in disarray. So that's had something to do with it.

But also we have, as we see, for example, the US government has been tough for quite awhile. We have made up for that in other regions. So it's kind of balanced itself out.

Okay, great. Thanks, guys.

David Wright, BMO Capital Markets.

Could you talk about the large deal size? Did you have more than one over $2 million -- or sorry -- your number was eight -- was seven over $1 million. So I'm just wondering how large some of those deals are?

Yes, they were on average, they were just slightly over $1 million for the most. There was one multimillion, but the rest were just $1 million, slightly over.

Okay, great. And so I noticed that your average deal size is climbing. Is that because of the greater number of multimillion deals? Or are you actually selling more even on the smaller deals? Is the average deal size rising?

It was mainly skewed by the big deals.

Okay. So we should see from a seasonality point of view as we go into Q1, might expect a few -- fewer larger deals and therefore the average deal size --?

Exactly. Yes, I think you'll be back to that [250] range.

Okay. And as your product becomes larger and more complicated, I'm just wondering if there is more of an opportunity for services revenue and revenue growth in looking at the business model. Is that something that's an opportunity or --?

Actually, the PS organizations, we've tried to keep it constant around this mark where we're basically -- our goal is to help customers get the product up and running and using as quickly and as efficiently as possible. But also this past year, we've been doing a lot of enablement to get our partners also providing the services for our customers. We don't particularly want to grow. In fact, we could easily grow the revenues for professional services higher if we wanted to. There is a demand.

Very good. Thank you very much.

Barbara Coffey, Kaufman.

When you're taking a look at the sales cycles around the world in this past quarter, have you seen any additional thresholds, whether or not it's sign-offs or there is altering deal sizes so you can get smaller chunks done? And whether or not that has changed based on geography?

It really hasn't changed over the past two years, I would say that that's been the case, whereas more sign-offs, more chunking. And it's been across both North America and Europe. I have seen us be more efficient in our pipeline management and closing over the past six months as we've got a more seasoned sales force.

And do you see any difference between the process, whether or not it's -- when it's a direct sale versus whether or not it's with partners in the process and the timing it takes to get stuff completed?

What I would say is over the past -- again, over the past six months, we've been able to see more visibility on the partner pipeline. Previously, as we have built relationships with our partners, there's much more sharing of what's in the pipeline and at what stage of the pipeline is it. And so we've seen more visibility in the partner pipeline than we have previously.

Blair Abernethy, Thomas Weisel Partners.

Paul, I just wanted to ask you a little bit about the maintenance base. I'm wondering if you could just talk a little bit about how the renewal levels are there. And so what's the pricing environment looking like for maintenance renewals? And also just your sense on the Hummingbird maintenance base.

Sure. Our renewals are still in about the 92% to 93% range. And the team continues to get what I would call pretty effective increases on a year-over-year basis. So that's helping make up a good part of even the attrition of the 6% or 7%.

And then we were very pleased with the continuance of the customer base in Hummingbird. So we've enjoyed that. It's experiencing the same high level of renewals that we found in Open Text.

Okay, great. And just on the sales and marketing side again, can you give us a sense of the -- where you're looking at taking that rep count in 2009 and what you have today, how much of the rep community is seasoned versus people that are still ramping?

So we have hired a number of people in this past quarter as we end the fourth quarter. So that as we have our sales kick-offs, we've got those people onboard. We have probably a 30% overage capacity in the sales force. So at this point in time, we have certainly enough to feel comfortable with our numbers, but we do see potential opportunities in places like Russia and China where we might -- working with partners, we might expand those groups.

Okay. And any change in the competitive landscape this quarter for you guys?

Not really, no.

Okay, great. Thanks very much.

Scott Penner, TD Newcrest.

John, just if you could get a little bit more into the acquisition strategy as it stands right now, a couple of fairly small deals in the quarter. You've previously talked about looking at solutions providers in areas like SAP. Is that still an area that we should look for you to be active in? And is there more material transactions on the horizon?

Certainly the strategy remains the same. We do see applications solutions, particularly with our partners like SAP, Oracle, et cetera, that we will continue to look at. And so there's really no change in that. And we see -- there's a lot of opportunities, that we feel the market is getting hotter, if anything.

Okay. You haven't -- you still see valuation as not being a hurdle in some of the deals you're looking at?

That's correct.

Okay. And Paul, just what -- should we assume that the tax rate stays at kind of this 30% level in the next year?

Yes, that's correct.

Okay. And lastly, John, just a little bit more on the status of the Hummingbird upgrade cycle. I think you started to get a little bit into this earlier, but do most of the Hummingbird base now have the Enterprise connect capability? And when do you expect some of the real upgrade license revenue to start hitting them?

Actually a good question, Scott. So, they have the upgrade capability now. And we believe we'll start seeing it -- my guess is November onwards we should start seeing pickup in that area. After our user conference is usually when things start picking up.

Okay, great. Thank you.

Dushan Batrovic, Canaccord Capital.

Some of the big concerns out there are around software, IT spending across the board. Just wondering how well insulated you feel if the industry does not grow at the 10% to 13% that analysts predict, but 5% or 6%. Can you beat that number, given the focus on the compliance side, given the exposure to a broad base of verticals that will not be as necessarily hit as the broader IT markets?

Yes, so from the studies we've seen, we saw that IT spend for the coming year was supposed to be in the -- I think on a worldwide basis, something like 3.5. That study was tempered a little bit. They did another follow-up study in the US where they brought it down in the US to about 3.25, although that was -- it was still averaging close to 3.5.

The one and two most where spend was going to be on security and ECM. So we were the second largest piece of the software spend of that budget. And we see particularly strong compliance in Europe and we're beginning to see in Asia as well. So I feel very comfortable on the 10% to 13% at this -- looking six months out, feeling very comfortable.

Can you just remind us what the rest of -- the 40% of the business that isn't tied to compliance, what that is driven by?

It's driven by existing customers, basically, linking their unstructured data to their structured data, or things like Web Content Management Solutions, Digital Asset Management Solutions, those kind of things. But it's hit a lot around linking their structured information with their unstructured, archiving email, et cetera.

Okay, thanks very much.

Gabriel Leung, Paradigm Capital.

Thanks. Just a couple of quick things. The large deal in the quarter, could you comment on whether that was greater or less than 10% of total license revenues?

Less. I don't believe we've ever had a quarter where one deal was more than 10% of the revenues.

So, is it sort of between 5% to 10%, then (inaudible)?

Less -- yes, we won't go there.

Okay, fair enough. And as I look across the $0.5 million plus and $1 million plus deals, can you comment on what percentage of that was displacements? How much of that was existing customers? And of the displacements, what was some of the common -- the rationale for moving from a different platform over to you guys?

Yes, so, I think I mentioned, on our existing customer base it's close to 70%, something like that of existing customers. On the new displacements, a lot of it has to do again with the ability to interface tightly with structured information from people like SAP and Oracle, et cetera. So that would be a lot of the displacements.

Fair enough. And Paul, the maintenance margins -- I think down to around 81% this quarter -- can you comment on that? And what your expectations would be heading into the next few quarters? Do you expect that to jump back to the 84%, 85% range again?

Yes, I do. It's just basically a Q4 -- just call it an anomaly for now. So you can expect it getting back up into the -- what you saw for the year in total, in the close to 84% range.

Okay, that's great. Thank you.

Tom Liston, Versant Partners.

John, just on the -- nice bead on the quarter with license revenue. Obviously, there was a lot of -- you attributed it to competition being distracted, the sales execution, et cetera, and as much as aiding partners, and that's all true. Do you think there might have been a little bit of -- and when you talk to CIOs and such, do you think there might have been a little bit of folks out there saying that they're pulling in some of the spending because they -- into this quarter, because they're worried on the second half that the budgets might get reduced, given the macroeconomic backdrop?

I haven't seen that. And what I try to do is visit five to nine CIOs a quarter, and give them -- just talk in general about what they see going on. That's not been one of the issues. In the US, there is a concern about the economy, but again, coming out of that study I mentioned where the 3.5 -- there was a 3.5 increase in spending, there was still spending going on. So they're being cautious, but they certainly had the budgets to do what needed to be done. I haven't seen that.

Sure. Okay. And in Europe, you're not seeing any weakness? The economy there is obviously starting to turn as well?

Not in the areas that we're in, no.

Okay. And finally, just clarification. I believe you said your growth was -- and was it license at 15% -- sorry, 13% to 15% if you normalized it? Does that mean in constant currency? Is that the comment you made in your prepared remarks?

That's right. Yes.

Okay. Great. And that was for the year, right?

That's for the year. Correct.

Thanks, John.

Mark Schappel, Benchmark.

A couple of questions. Paul, why did the net interest expense essentially go away in the quarter?

Yes, the significant portion of that I mentioned earlier in the call was that we do have an accounting adjustment mark-to-market on a hedge that we have in place for the debt. So when the debt originated, we put 50% in a floating to fixed hedge. And because interest rates have fluctuated, we have to do a mark-to-market each quarter. It's a non-cash charge. And mostly through the year, it's been a charge to interest expense. This quarter, it was a reversal of some of that, about a $2.4 million credit to that expense line. And then the other part is interest income is up about $0.5 million.

Okay. And going forward, can we -- is it wise to go back to just modeling a more normalized interest expense?

It is, yes.

Okay. And then on the $11.3 million other income benefit, could you just review one more time -- I believe you said it was related to foreign exchange. It just seems like such a large change from prior quarters, though. I was wondering if you had any color on that.

Yes. Some of the reasons that you would change from prior quarters is classifying certain foreign currency loans, be it intercompany loans; sometimes you change the view of them from a permanent to non-permanent. And that can change the way you account for foreign exchange. Some of that happened in this quarter.

David Wright, BMO Capital Markets.

Paul, looking at the balance sheet, there's quite a change to the tax positions. I was wondering what was driving that? Was it reclassification? Did it have to do with maybe the acquisitions you did? And will this affect cash flow in the coming year at all?

Let me deal with cash flow. It won't affect cash flow. Some of it, if it's appearing year-over-year, yes, there was some reclassification groupings out of the introduction of FIN 48, which is effective the beginning of the fiscal year, so you would see that, a change if you're looking at year-over-year balance sheets. That would be what that would be about, but in terms of cash flow and taxes, no, we would expect this to continue to be in that 15% to 20% range.

Okay. And no -- did you buy tax loss carryforwards in those acquisitions and are they at all reflected in here?

No. No, they wouldn't be -- one was just an asset purchase, the other wouldn't be material. So it wouldn't be reflected there.

Okay, great. Thanks very much.

(Operator Instructions). Mr. Shackleton, there are no further questions at this time. Please continue.

Okay, well, thank you all for your questions. Just to wrap up on the quarter highlights, Q4 was an excellent end to a record year for Open Text. I'm very positive on our outlook for fiscal 2009. We have exceeded both our revenue and profit goals while generating strong cash flow from operations. Our partnership programs is working very well, and we continue to focus on selling in these areas.

So this concludes our call for today. Thanks, everyone, for participating and for your questions.

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