Open Text Corp (OTEX) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Open Text Corporation fourth quarter fiscal 2009 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. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on August 20, 2009 at 5 PM Eastern Time.

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

Hello everyone, thanks for joining us. With me today are Paul McFeeters, our Chief Financial Officer, and John Shackleton, our President and Chief Executive Officer.

As -- before we begin I would like to read the 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 applied in drawing a conclusion while making a forecast or 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 a conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection as reflected in the forward-looking information, are contained in the Open Text Form 10-K for the fiscal year ended June 30, 2008 and in our press release that was issued earlier today.

With that, I'd like to turn the call over to Paul McFeeters.

Turning to the financial results, I'll highlight our fourth quarter and then the fiscal year 2009.

Total revenue for the quarter was $203 million, up 2% compared with $200 million for the same period last year.

License revenue for the quarter was $63 million, down 8% compared to $68 million reported last year.

Maintenance revenue for the quarter was $104 million, up 10% compared to $95 million last year.

Services and other revenue in the quarter was $36 million, down 3% compared to $37 million in the same period last year.

We report fourth-quarter adjusted net income of $39 million or $0.73 per share on a diluted basis, up 18% compared to $33 million or $0.63 per share for the same period a year ago.

Gross margin for the fourth quarter before amortization of acquired technology was 74.8% compared to 73.9% in the fourth quarter last year. The increase was primarily due to a higher margin for customer support.

The pretax adjusted operating margin before interest expense was 26.5% in the fourth quarter, compared to 24.3% the same quarter last year. The adjusted tax rate for the quarter is 28%.

Net income for the fourth quarter, in accordance with GAAP, was $19 million or $0.36 per share on a diluted basis, down 29% compared to $27 million or $0.51 per share on a diluted basis for the same period a year ago. There are approximately 54 million shares outstanding on a fully diluted basis for the quarter.

Operating cash flow in the quarter was $39 million compared to $45 million in the same period last year. Net cash flow from operations for the fiscal year was $176 million compared to cash flow from operations of $166 million in fiscal 2008. Note that in the current year we had a one-time operating cash reduction of $10 million due to excess tax benefit due to stock comp.

Turning now to our fiscal 2009 results, total revenue was $786 million, up 8% from $726 million in fiscal 2008.

License revenue was $230 million, up 5% compared to $219 million last year, while maintenance revenue was $405 million, up 11% compared to $364 million last year.

Services and other revenue increased 6% to $151 million.

For the fiscal year license revenue was 29% of overall revenue, product maintenance revenues account for 52%. The remaining 19% came from professional services.

Gross margin for the fiscal year before amortization of acquired technology was 74%, up from 73.6% in the previous year.

Pretax operating margin before interest and stock comp was 25.2% for fiscal 2009, up from 24.3% last year.

Adjusted net income for the fiscal year 2009 was $133 million or $2.49 per share on a diluted basis, up 24% compared to $107 million or $2.03 per share on a diluted basis for fiscal 2008.

As I stated last quarter, our overall fiscal 2009 tax rate for adjusted earnings, 28%, compared to 31% in the prior year. On a go-forward basis for fiscal 2010 we expect the tax rate for adjusted earnings to reduce further 2%.

During the current quarter the annual adjusted tax rate was just 28%. The adjustments recorded reflect a year-to-date amount that increases the EPS by $0.04 in the fourth quarter. In a press release, we included a chart to summarize the impact of this adjustment through each quarter in fiscal 2009.

We reported GAAP net income for the year of $57 million, or $1.07 per share on a diluted basis, up 7% compared to net income of $53 million or $1.01 per share on a diluted basis in fiscal 2008.

On the balance sheet at June 30, 2009, deferred revenue was $197 million compared to $180 million as of June 30, 2008, and accounts receivable was $116 million compared to $134 million at the end of last year.

Days sales outstanding was 51 days as of June 30, 2009 compared to 52 days for the previous quarter and 60 days at the end of Q4 last year.

On June 21 we announced that we completed our acquisition of Vignette. The aggregate value of the consideration paid was approximately $321 million to purchase the shares of Vignette. As part of the consideration, we issued approximately [8.4] million shares, bringing our current total shares outstanding to approximately 57 million on a diluted basis.

As part of acquisition accounting, we will fair value the acquired deferred revenue for customer support contracts. The details of this adjustment will be provided in next quarter's press release. However, I expect the range of this adjustment to be between $6 million and $8 million for the first year of operations.

While we will not break out the financial effect of the acquired Vignette business, I will remind you that they were operating at a breakeven margin. We expect this acquisition to be neutral to the operations in Q2, accretive in Q3, and on our operating model by the end of this fiscal year.

As part of this acquisition, we stated we will reduce worldwide employment and continue to rationalize facilities in both Open Text and Vignette. We also stated that the Open Text and Vignette restructuring charge will be approximately $32 million to $40 million and a discharge will be recorded in our income statement. The charge is made up of $26 million to $31 million for workforce, $3 million to $5 million for facilities, and $3 million to $4 million for other charges. The cost savings as a result of these actions will be an annual run rate savings of approximately $40 mm to $50 million based on combined cost base, pre-merger. This will drive earnings growth this fiscal year to exceed topline growth, as John will discuss shortly.

Switching sides to the foreign exchange, as a result of our natural hedge in our operations, the net impact on the bottom line was less than $0.01 EPS for the quarter and less than $0.02 EPS for the fiscal year.

I'll now turn to the company's pretax adjusted operating margin model. Confident in our plan 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, we will be increasing the range of our operating margin from the former 20% to 25% to 22% to 27% for fiscal 2010.

Finally I would like to remind the street that we will be hosting a financial analyst briefing on Wednesday, October 28 during Content World, our annual users conference in Orlando, Florida. We plan to report our Q1 results the evening beforehand, on Tuesday, October 27. Please contact our investor relations department for more information.

Now I'll turn the call over to John.

Hello everyone. Thank you for joining us today. Let me start by saying I am disappointed that we were slightly off on our Q4 revenue targets, mainly due to the WCM delays where customers were waiting to see our new WCM strategy with the announcement of the Vignette acquisition. Over the past month we've now been communicating our strategy to customers, and I believe this will help us going forward.

While I am disappointed with the revenue, I am pleased that we grew our adjusted earnings by 24% on an annual basis, as Paul mentioned.

As for a revenue breakdown, North America was responsible for 47% of revenue, Europe 48%, with the remaining 5% coming from Asia-Pac. Europe was on-target and Asia-Pac exceeded its target, while the shortfall occurred in North America. Sales continue to be driven by demand for compliance and ERP-based solutions. And we are particularly happy with the success around our SAP product sales. On an annual basis we saw 50% of our revenue from North America, 45% from Europe, and 5% from Asia-Pac.

In the quarter we generated $63 million in license revenue, 32% coming from new customers and 68% coming from our installed base.

In Q4 we saw license revenue broken down by vertical as 29% from high-tech manufacturing, 18% from government, 15% from energy, 11% from pharma and life sciences, and 9% from financial services.

On an annual basis we saw 28% from high-tech manufacturing, 15% from government, 11% from energy, 10% from financial services, and 7% from pharma and life sciences.

Taking a closer look at the transactions in the quarter, we had 15 transactions over $500,000, an additional three transactions over $1 million. This compared to six transactions over $1 million in our last year. We had notable wins in the energy sector and with the US government. We saw our sales cycles getting a little longer, so we've been working with customers to structure smaller transactions, making it easier for them to achieve approvals.

Examples of significant wins in the quarter include Corus Entertainment, one of Canada's media and entertainment companies. They purchased the Open Text ECM suite for digital asset management and content lifecycle management. Corus is evolving its broadcasting operations infrastructure to an end-to-end digital environment as well as reducing its dependency on paper documents. Open Text were selected primarily because of its extensive experience in the broadcast and entertainment industry. We are also currently working with Corus on a joint R&D effort.

Another customer was Nokia Siemens Network, continuing its infrastructure development by adding to its existing core ECM system of the Open Text technology. The company plans to build the next extranet that will be used for collaboration with external business partners and replaces its existing employee information management system with the Open Text solution.

DuPont purchased additional Open Text licenses to support their SAP business practices with the Open Text Document Access for SAP solutions. DuPont will have the ability to archive and link documents to SAP transactions outside of the core system, improving the overall performance of their entire enterprise solution.

From a sales operation standpoint, we closed the quarter with a combined sales force of over 269 quota-carrying sales execs. With Vignette, the number is now close to 300. SAP, Oracle and Microsoft all continue to report increasing partner demand for solutions in archiving, records management and compliance. License revenue from partners and resellers was approximately 39% in the quarter and 35% for the full fiscal year. I am now satisfied that our channel strategy is properly balanced between our own direct sales and partner resales.

Turning to product announcements in the quarter, we announced the availability of Open Text Social Media, a major part of our Enterprise 2.0 strategy and the latest addition to the Open Text ECM Suite. The solution offers a natural and intuitive social media application that gives people new ways of working productively together through the web and mobile devices while also meeting security and compliance demands by being integrated with a company's wider ECM system.

Also in the quarter, Open Text Social Media ranked in the highest category for ZDNet in their map of the 2009 marketplace for Social Media 2.0 vendors, well ahead of our competition from the traditional ECM market.

Also in the quarter we announced that Open Text received the highest rating possible in Gartner's 2008 MarketScope for Records Management report.

On the event side, we hosted Content World Europe, which was a big success with almost 2,000 attendees in eight cities. In October we will also be hosting our North American Content World conference in Orlando, Florida, where we will announce our detailed product roadmap and outline our product integration strategies for Vignette.

As Paul mentioned, we will also hold an analyst briefing on Wednesday, October 28. With many strategic partners presenting and key customers in attendance, we will highlight a good cross-section of industries including specific vertical and partner-based solutions.

Turning to Vignette, we are excited to welcome Vignette employees, customers, and partners to the Open Text team. With Vignette as part of Open Text, we strengthened our leadership in ECM and created the largest web content management vendor in the world. Vignette customers will benefit from Open Text's expanded ECM solution portfolio, Open Text strategic partnerships, and integration with major enterprise players such as SAP, Oracle, and Microsoft, and the support of the world's largest ECM solutions provider. Vignette will also provide a key role in our strategy for social digital media, where a fast-growing user base has expectations for more personalized web interactions.

Open Text will continue to support Vignette products and installed base, including users of previous versions of Vignette Content Management as well as Open Text existing web solutions products.

With the addition of Vignette, Open Text is now just over $900 million in revenues. So we are taking this opportunity to realign our sales organization on a global basis. The sales regions of North America, Europe, and Asia-Pac will now be managed by three general managers owning sales, field marketing, professional services, customer support and partner support. We believe this structure will serve us well as we grow over $1 billion.

On a personal note, John Wilkerson will be retiring this coming year but will be helping me transition the organization to this new general manager model before he leaves us. We would like to thank John for his tremendous efforts and dedication over the past three years.

Turning to our outlook for FY '10, industry analysts are telling us that IT spend is looking at negative 3% to 10%. I feel that we can continue to lead the ECM market and growth as we did last year, and we will also manage to the bottom line as we did last year.

I would now like to provide some guidance on the expected revenue of the combined businesses. Historically we've said that an acquired company's license revenue is expected to drop 20% to 30% in the first year after acquisition. Taking into account that Vignette's license revenue was dropping significantly for several quarters before the acquisition, we are taking a more aggressive position, discounting this license revenue by 30% to 40%. I would also suggest that the street model professional service revenue from Vignette with the same 30% to 40% annual decline.

Vignette maintenance was also trending negatively in the 5% to 10% range annually during the quarters leading up to the acquisition. While it's our primary focus to build and maintain relationships with newly acquired customers, we think the trend of Vignette's maintenance will continue to decline in the 5% to 10% range for at least the next couple of quarters.

I feel very confident with the margin model that Paul has outlined, and I feel confident in delivering our profitability targets for the next fiscal year and expect to show double-digit EPS growth. I am comfortable with the first call estimates for adjusted EPS for FY '10.

On a final note, I am pleased to report that we were just ranked by Fortune magazine as the seventh fastest growing company in the world in overall profits.

Now I will like to open up the call to questions.

(Operator Instructions). Scott Penner, TD Newcrest.

Thanks. Just first a couple of clarifications. Paul, I think you in your comments said -- are we to read into that then that Vignette is expected to be slightly dilutive in the first quarter?

That's correct.

And the tax rate as well, it sounded like you were talking about going from -- we should be modeling 28% to 26% in the upcoming year. Is that right?

Correct.

And then John, just on the geographical split of revenue, Europe has been -- it seems to have been weak for a lot of vendors out there, and you are saying it was basically in line. Is that a -- is the split of revenue a function of where your WCM business is based?

It is. We do see a lot of WCM business in the US. But interestingly, we saw Germany, that had been weak a previous quarter, come back fairly well this past quarter. So Europe did better than we expected.

You mentioned particularly happy with the SAP relationship. Maybe you could just go into a little bit more detail to the extent you have deal specifics from SAP, and then I guess how you capitalize on the strength that you're seeing.

I think what was -- obviously SAP had a tough quarter last quarter. But what we found was is that working with their salespeople, both North America and Europe, we were able to go back into their existing base and sell the archiving products and the vendor invoice management products to that customer base. So we had -- even though they were having a tough time, we had quite a bit of success selling our products.

And lastly, and this may not be something you can really even comment on, but the Vignette -- the last quarter that they had announced, the guidance at that point from the management there was basically for flat, possibly -- I guess is the word to say -- possibly flat revenue for the year. And you are now cautioning us to be modeling down 30% to 40%. Is there anything to describe that sort of discrepancy?

So basically, if you saw the decline that they had was significant for probably eight quarters before we took them over, a lot of what we have seen as we've talked to customers was customers that were -- had been moving from their version 5 to version 7 products were having a tough time. We think we can help them stabilize those issues, and for many of the new customers who are now at 7, things seem to -- it's a much more stable product. And so it's going to take us a little time to help customers get that cleaned up. But we actually then think we can start certainly stabilizing and growing the business.

Thanks, I'll pass the line.

Tom Liston, Versant Partners.

Good afternoon, thank you. Just to confirm, it's $40 million to $50 million in cost savings, and the timing on that is exiting Q4, is it?

That's right, Tom.

And the same thing with the model guidance including an increased range, that's not for the year, that would be kind of an exit-4Q type number, would it be?

No, that's for the fiscal year.

For the fiscal year. So including some of the early dilutive affects and working through all that?

That's correct.

John, sorry if you've already said this, but the Vignette numbers that you base the drop on is based on the run-rate type numbers, and can you give us some color on how they did in the June quarter?

We can't comment on the June quarter, but it's on the -- sorry, the run rates, Tom?

Sorry. The -- when you say a 20% to 30% drop in license is more like 30% to 40%, is that based on kind of March or trailing-12-month type numbers?

That's correct. It's based on their last reported numbers.

Finally, real quick on your professional services also, I think it's been the lowest -- as a percentage of revenue, that is -- for a number of quarters. Is it just some hesitation there? Or is there anything else going on that we should be looking into?

No, it's a little bit of hesitation I think we've seen as part of some of the delays. We have seen a number of our customers tightening budgets, delaying projects, etc., but it's -- they're certainly not canceling projects, they are just delaying. So we don't see it as a concern at this time.

Great. Okay. Thank you, John and Paul.

Richard Tse, National Bank Financial.

With respect to the WCM business, was that sort of the lions share of the shortfall to your numbers this quarter?

That's right.

What would you expect in terms of the drag on the results in terms of recovering that revenue here?

I'm sorry. In the year?

Is that like a one-quarter thing? You've obviously been talking to a lot of your accounts here. Is that going to pick up within a quarter or two? Or (multiple speakers)

We think it will, yes. We think it will pick up. It was one -- as now they've -- in many cases they've seen the roadmap that we've shown them. We see some interesting synergies between the two products, and so from the customers that we've talked to, it's been very positive.

Just sort of a broad question. You've had a few acquisitions this year. What do you see sort of as a roadmap for Livelink as a whole going forward? Are you going to sort of try to move everyone on a single platform down the road? Maybe you can give us a little bit of color on that.

On the web content management side what we're basically seeing is that Vignette has the e-commerce, very strong, robust enterprise-wide product. Where they had weaknesses was -- and one of the key concerns for customers was it was very difficult to customize, not user-friendly, whereas the web content products that we had, the Red -- mainly the RedDot product -- easy user interface, easy to use, easy to customize. So as we see putting the two together, we see some significant synergies in that area.

We also see from the Vignette Portal product that that is going to help us in our social media product, so that we are seeing some very interesting synergies that we hadn't been thinking about that we can use that product with our social media Livelink product.

Just a last one. Beyond the web content management, the other businesses, have they sort of shown any sign of weakness with this backdrop here? Or is this --

No, no, not really. We've actually said, other than that, we've been pretty much on-target. It's a tough economy obviously and things are slow, but we've pretty much been hitting the numbers on the other product areas.

Okay, thank you.

Paul Steep, Scotia Capital.

Great. John, maybe we'll actually carry on on the product side. What's sort of the timing for the integrated platform? And I guess would the plan be to migrate that Vignette product over to RedDot? Because I remember they -- I think they were on a different architecture, as I recall.

Actually, it would probably be the other way, where we would migrate the RedDot to the Vignette platform. We will be showing a detailed roadmap at the conference in October. So I think you'll get a good, clear -- but it looks pretty interesting the way that things are shaping up.

Then just three quick ones for Paul, just to throw them all in one batch here. I guess the Vignette tax shield, it was pretty substantial? If you could comment on that. Then on FX, we have license revenue of about 1.1 positive year on year. Is that sort of where it tracks in? And then finally, on your margin bump, is that one-time only, the extra bump in the model of 2% in '010? Or is that sort of ongoing, '010 and beyond?

I'll start in reverse order. The margin is expected to be ongoing. I wouldn't -- we would hope not to increase it and then go in reverse. So we are adjusting our model for FY '10 and future.

As in the past, I apologize, we don't comment on FX on a line by line basis, but on the bottom line, as we did, it's fine.

On the tax shield, yes, we will have -- in the US there is some restriction of what you can bring forward in losses as a percentage of your acquisition costs. It's still significant enough, and we will be able to utilize that portion against our cash taxes, otherwise payable in our other US operations.

That's going to be -- how's that going to have to work out, Paul? Is it spread out over many years or is it spread (multiple speakers)

Yes, it is spread over many years, yes.

Perfect, thanks guys.

Brian Freed, Morgan Keegan.

Good afternoon. I have two quick questions. First, if you kind of look at your core business and then back out maybe $20 million to $25 million [because you can't carry it], it looks like the organic revenue was down maybe 10% or so year over year. But the economy stabilizing and the WCM likely to improve after you -- now that you've got the Vignette acquisition closed, do you think that kind of bottoms and improves going forward?

If you listen to the analysts, what we are hearing is that IT spend in general for the remainder of the year is anywhere from minus 3% to minus 10%. But what we are hearing from -- on the ECM side, that we are looking at flat to single-digit growth. And we feel pretty comfortable with that.

Okay. And would you say the delta between what you did this quarter and flat single is really just the freeze in the WCM sector that (multiple speakers)

We -- from what we are seeing, we think so.

And then the second question, you guys announced a really nice win with the Province of Ontario. I know historically such wins tend to be pretty large in size, but roll out over a fairly long period. Can you talk a little bit about the scale and scope of that opportunity?

As I think we've mentioned before, it's a 10-year contract. And the opportunity is -- it's a very large -- it's the largest in our history. We see that they -- particularly in today's environment, we see significant potential for growth with that contract where the needs around archiving and records management, etc., is pretty high. So we see that as a tremendous opportunity for us going forward.

Have we seen any impact from that yet? Or is it all yet (multiple speakers)

A little bit in last quarter, but really minor. We -- but we do see obviously in the coming year, we would expect to see some significant revenue from that.

Thanks so much.

Barbara Coffey, Kaufman.

I have just a couple quick ones. Is there an average deal size? I didn't hear that in the text.

It's roughly the same. The deal size is just somewhere in the 300 range, and pretty much been the same. Although it's interesting in that, as I mentioned, last Q4 we had six multimillion dollar deals compared with the three, so I would've expected it to be down a little bit. But we did make up with some in the more of the $500,000 range.

And that was the other kind of question that I was -- you said there were six deals greater than $1 million last -- this quarter last year?

Right.

How many were sort of greater than $500,000?

I would have to check and get back to you on the numbers.

Michael Abramsky, RBC Capital Markets.

Thanks. Could you just go into a little bit more about what's going on with the WCM shortfall? So is that largely from both Open Text and Vignette customers, as well as prospects?

It was certainly from Open Text and -- customers and prospects where they were wanting to see what might the impact on that be. But I also think, as Vignette has experienced, in these tough economic times people have been kind of holding off on doing anything around their websites unless it's really mission-critical.

So there could be an element that even if you early on do qualify the roadmap issue, where there still could be sluggishness.

Right.

And I guess the question is, when you're comfortable with the kind of single digits, what is the risk that if some of those Open Text customers and prospects continue to kind of hold off on the WCM side?

Right. The key -- what I would say is, is that we have been very -- the synergies that we see as we have talked to Vignette customers and they see the whole portfolio, the products that they could use, with -- as well as the roadmap that we have explained to them, people were very positive.

I guess --

So even if -- let me say it another way. Even if WCM stayed on its same course or at least bottomed out, we'd still feel comfortable growing the numbers.

And would you sort of characterize the extended sales cycles and decision processes as longer this quarter than previous? Like just kind of characterize the trend over the last two or three quarters. Is it (multiple speakers)

I would almost say if you looked at typically a six- to nine-month cycle, it's now more like a nine to 12 months.

I guess the question is, are you seeing it extend, extend, extend, and do we -- would that like -- or like how long do you think that may -- that trend, will it continue to get longer? Or continue?

It's really hard to say. The -- from what we are hearing today, many people are saying we are going to hold off until January to do -- to start this project.

So what is it -- I guess on that -- in that environment, what is the basis for the single-digit growth? Where are you assuming that that will come from? And what kind of assumptions are you making on further delays in sales cycles (multiple speakers)

It's a very good question. What we are seeing is that any areas where you can show rapid return on investments -- so particularly around areas like our vendor invoice management or expense management, some of the things that we are seeing interfacing to the ERP systems, they can see some significant, quick ROI's -- we are seeing interest in those areas.

Because those are areas that reduce headcount?

Reduce costs but also reduce costs in a very short time frame.

So the ERP interfacing is the kind of where they would be able to eliminate some headcount.

Similar to the thing I mentioned I think last quarter where say a utility company can scan in their bills very quickly and interface that to an SAP system that can reduce their time to cash from days to hours. And so quick -- really quick ROI, easy wins.

Sounds like you're going to be doing a fairly material restructuring of sales in Europe.

Actually on a worldwide basis where we are putting the general managers in place that will have not only sales but professional services and all the other, field marketing, etc., under them, where they will be managing their own P&L's.

So what is the potential disruption risk of that to things like account transition and territory reallocation and (multiple speakers)

It should -- on the territory allocation and -- in fact it should help because these people have the resources and control at their fingertips closer to the customer. We've done it on a limited basis for the past year, and we have seen that it has been an improvement in both internal but also from a customer perspective.

So we shouldn't -- as I said, we have been doing this gradually over the past year. We have the managers in place. These are very seasoned managers that have managed P&L's and managed large teams of people. So we feel pretty confident that this will work well, as well as give us the ability to grow as we go forward.

Thanks John.

Dushan Batrovic, Canaccord Capital.

Thank you. First one -- sorry, I know this was asked, but I'm still a little bit confused by the response. The 30% to 40% discount that we would apply to the sales, that's on Vignette's last reported quarter, so the March quarter?

Right.

Thank you. Next, the geographic situation, it seems like it's changed a little bit since last quarter. I think you were talking about the Americas picking up a bit and Europe still lagging, and it sounds like this time around that has flipped. And (multiple speakers)

Exactly. Exactly. In fact it was Germany that was hurting last quarter, and Europe and North America we saw picking up. And what we did see was more product-related in the US. We did see a lot of activities out of pipeline. It was mainly around the WCM product areas.

Oh, okay. So it's not necessarily a comment on the macro (multiple speakers)

The geographic, right. We have -- from a pipeline standpoint, we have seen good activity in North America.

Okay. Next from me is -- you've had a lot of experience with acquisitions in the past. Maybe you could point us to one that perhaps Vignette most closely resembles. Should we look at this as like a Hummingbird? Like a Captaris? Or something else that you have done in the past -- just as kind of the proxy?

From a -- organization standpoint, culture standpoint, it is a bit like a Hummingbird -- good, these people know the technology, know our space, good cultural fit. I think the difference is obviously that Hummingbird wasn't in as large a decline as Vignette has been. I think the -- also the difference is the surprise we have seen with the synergies of both the products and people with Vignette has been very positive -- and the cultural fit. I think from all the acquisitions we have done, the Vignette management team and people, everyone we have met, have been much more open, cooperative, and it's gone very smoothly.

Last one from me is on the social media side, it sounds like a really interesting long-term opportunity. Maybe you could just tell us a little bit around what types of timelines we should be looking at for this new product to really start to make a dent in the financials.

Right. Again, I think you will get a fairly good feel for it if you attend the October -- the analyst meeting where we will be showing roadmaps. We're seeing particular interest in governments, and particularly around the areas of mobile computing as well, where many companies can see the advantage of being able to hit their mission-critical systems through their mobile phones being totally secure and yet integrate all the content.

All right, thanks very much.

Blair Abernethy, Thomas Weisel Partners.

Thanks very much. Just a couple of questions, Paul, for you, around gross margins. I'm wondering, the license margin was pretty strong this quarter. Was there any one-time items that sort of supported that? And then conversely, sort of on the service margins, if we look back over the last year or so, and we have had service margins that have been fairly weak. Do you see service margins, now that you're adding more bulk to the business, creeping up at any time?

So the license margin, I would guide you more to the annual margin. Q4 -- each quarter has a little different mix. What's really in that cost is the third-party royalties, so it fluctuates from quarter to quarter somewhat based on the mix of what we sell and the royalties that drags with it. So I'd look more to the annual margin going forward.

Similarly on the service side, I think that we are settling in on a combined margin there, just I would say between 18 and 20, and I wouldn't draw that into that, and I think that's how we'd think about it going forward.

Right. I think particularly in this economy that we want to work closely with customers, help customers, and so I don't see us increasing the margins on PS too much in the near future, in the near future.

Great. Paul, you had said -- in your prepared comments you talked about a tax adjustment of I think you said $0.04 or something. Can you just walk us through that?

Yes. So as you know, through the year each of our fiscal quarters, one to three, we were using an operating tax rate of 30%, so the adjustment at 28% for those previous quarters was equal to $0.04. It's applied -- and I put a chart in the press release just so you can see it, but it adjusted upwards EPS $0.01 in Q1 and $0.02 in Q2, $0.01 in Q3. That's how the $0.04 was distributed. As I said, I put that in a chart also in the press release.

Then just on the large deals, I wonder if you'd just give us some color -- more color on the three large transactions, sort of what sort of products or what areas drove those deals?

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I just had a couple more quick questions. Just on the large deals, I just want to get some sense of what are the solutions or what are -- what types of things are customers doing on -- I guess on the big three, but also even on the large 15 deals? Where are you getting traction in this weak market?

Right. So it's pretty much of a mix between areas around interfaces to their ERP systems. So they are using the content management with ERP. But also customers using Livelink with their -- and their web content management with their -- as we explained, like the extranet, so it's a -- I would say a mix 50/50 between compliance-based, working typically with ERP systems, and then the others around managing their content, particularly around managing their e-mail, e-mail archiving, that kind of thing.

And what are you seeing in the e-discovery space?

When I say compliance, that's really it, tied to e-discovery. So quite a bit in that area.

Okay. You're putting that in there. And one other question, if I can. Just on the legacy Hummingbird connectivity business, which in the past was fairly driven by employment levels, what have you seen in that business in 2009?

We have seen a slight decline of over -- but not -- certainly not as much as the decline as when we took it over, so that it's -- we've fairly stabilized. It's declining, but we see opportunities to grow that business, particularly -- as well as cross-sell our products into that customer base.

That's great. Thank you very much.

Scott Penner, TD Newcrest.

Just a couple things. One is, John or Paul, when you integrate the Vignette acquisition, you mentioned the PS margins being 18 to 20. Is there going to be a shock downward initially?

No. I don't think anything -- there might be during the first quarter, but I don't think anything. We are not expecting anything dramatic.

Then the other thing is, the Hummingbird installed base, it was always presumably fairly hungry for new technology when you bought the company. Where is that in the upgrade cycle? Is that part of the ongoing model right now? Or is there still -- is it still a substantial opportunity to sell those people new technology?

So one is -- yes to both. Really we have done well over the past two years of cross-selling and help supporting the existing Hummingbird base. But I think there is great potential to do a lot more.

Is that upgrade revenue, is that in your thinking when you give that single-digit type growth rate? Or is that -- would we consider that additional opportunity?

I would say as -- in this -- really we would look at it this way -- if the economy continues the way it is, supporting our existing base, up-selling and cross-selling into that base, will be the number-one strategy that we will do. And supporting our existing customer base. We think we can -- I think we can do more efficiently in these areas, so I do think there is some upside. But just focusing on our base, our penetration of the base in most cases is 15%, 20% max. So lots of opportunities.

That's helpful, thank you.

Ralph Garcea, Haywood Securities.

Just quickly on the government side, do you think with Ontario and the federal government rolling out, you can get to 20%-plus of revenue over the next three or four quarters?

That certainly is a possibility. We've never had a customer I don't think go above 10%, not for -- certainly not in the 10 years that I've been here. But there is a lot of work going on that has a potential.

Ontario was 10 years, federal government was seven, I think? Or --?

That's right.

Is there other possibilities that are in some of the larger provinces?

Absolutely. As well as even potential to grow within those, both the Ontario and federal, as well as some of the things that we're doing with the Canadian government would be applicable to other governments as well.

And then you've talked a lot about the SAP integration and the success there. What do you see in the future now with Oracle Fusion 11g middleware coming out and opportunities there now that that's a much slower product for you?

Right. We've been very pleased with the growth of our relationship with Microsoft. We've been doing a lot of work this past year with them. And we're seeing that coming along nicely. And we do see indications with Oracle that they're very interested in some of the things that we are doing with their -- JD Edwards and PeopleSoft, etc. And so we are beginning to see more work with them as well.

Would the SharePoint opportunity and SAP sort of be a similar size right now? Or --?

SAP is still the largest, but the Microsoft SharePoint certainly has grown.

Thank you.

Gabriel Leung, Paradigm Capital.

Thanks. John, just going back to the social media platform for a second. Can you talk about how bookings have trended for that product since you released it in -- I think it was in June? And whether or not some of your initial beta sites for the platform have converted into a -- or are planning to convert into a full deployment?

Yes. So to the last question, yes, some are doing that. On the revenues at this point, some of them have been existing customers. That's really part of their maintenance upgrade that we have been working with. And again, what we will be seeing is mainly trying to sell this into our existing base.

And just going back to your comments around the -- sort of the ECM on zero, flat, single -- flat to single-digit growth -- is your expectation for Open Text, at least on an organic basis, to continue to exceed sort of industry averages?

That's the goal. We believe this past year we did exceed our competition, that we got market share, and I would see that continuing.

And one question for you, Paul. Just on the G&A -- note that it ticked up a little bit sequentially. Was that just sort of some year-end costs? And we could expect that, on a standalone basis anyway, to sort of drop back down again in Q1?

Yes, that's right. I think year-over-year we went from 9.7 to 9.4. So I'd look at it on that basis.

Great, thanks.

Richard Tse, National Bank Financial.

Just a quick question for you here. You didn't talk about the maintenance renewal rates here this past quarter. How do those stand right now?

It's still in the low 90s. For us obviously the Vignette had been dropping slightly, and our goal will be to get our hands around that as quickly as we can and stabilize that.

Have you been able to get price increases on the maintenance base, or is it essentially flat to last year?

It's been pretty -- a little increase but not as much as what we would usually do. So I would say pretty flat.

Thanks.

(Operator Instructions). Mr. Shackleton, there's no further questions at this time. Please proceed.

Thank you everyone for your questions. And just to wrap on the quarter highlights, Q4 revenue was disappointing, but we had a decent year. We met all our profit goals in a very difficult environment. And I am optimistic on our outlook for fiscal 2010. The acquisition of Vignette strengthens our ECM leadership position, and the integration is on plan.

We would like to thank our employees and customers and partners for the tremendous support over this past year. And going forward, we expect to see single-digit growth for revenues, double-digit growth for our adjusted earnings.

So this concludes our call for today. Thank you everyone for participating and for your questions.

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