Open Text Corp (OTEX) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Open Text Corporation's fourth-quarter and fiscal year 2010 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 with instructions provided. (Operator Instructions).

I would like to remind everyone that this conference is being recorded today, Wednesday, August 18, 2010 at 5 p.m. Eastern time. I would now like to turn the conference over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead.

Thanks, Luke. Thank you for joining us. Please note that 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 or while making a forecast or projections 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, a forecast, or a projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or a projection, as reflected in the forward-looking information, are contained in Form 10-K and Form 10-Q's of Open Text as well as in our press release that was issued earlier today.

With that, I'd just like to comment on a few housekeeping items. First of all, Open Text will be holding an informal analyst briefing at the Microsoft Campus in Redman, Washington on Monday, September 13. This will be an excellent opportunity to understand from a Microsoft perspective how we bring value to the partnership. As well, we'll be hosting an analyst briefing at our annual users conference, Content World, on Wednesday, November 10, 2010 in Washington, D.C. Content World is being held on the week of November 7 through to November 12.

Please reach to Investor Relations or email me directly if you're interested in attending or being part of any of these events. Now with that, I'll turn the call over to Paul.

Thank you, Greg. Turning to the financial results, I will highlight our fourth quarter and then the fiscal year 2010.

Total revenue for the quarter was $240 million, up 18% compared to $203.4 million for the same period last year. License revenue for the quarter was $68.5 million, up 9% compared to [$63 million] reported for the same period last year. Maintenance revenue for the quarter was $129 million, up 24% compared to $105 million from the same period last year.

Services and other revenue in the quarter was $42 million, up 18% compared to $36 million in the same period last year. We reported fourth quarter adjusted net income of $54.9 million, up 40% compared to $39.2 million in the same period a year ago. Fourth quarter adjusted EPS was $0.95 per share on a diluted basis, up from [$0.73] per share from the same period a year ago.

Gross margin for the fourth quarter before amortization of acquired technology was 75%, which remained the same as in the same quarter last year. The pretax adjusted operating margin was 32.2% in the fourth quarter compared to [26.6%] in the same quarter last year. The adjusted tax rate for the quarter is 27%.

Net income for the fourth quarter in accordance with GAAP is $51.5 million or $0.89 per share on a diluted basis compared to $19.5 million or $0.36 per share on a diluted basis for the same period a year ago. There were approximately [57.9 million] shares outstanding on a fully diluted basis for the quarter.

Operating cash flow in the quarter was $65.2 million compared to $38.6 million in the same period last year. After the impact of restructuring and direct acquisition-related costs incurred in the quarter, operating cash flow would have been approximately $74 million for the quarter.

Now turning to our fiscal 2010 results, total revenue was $912 million, up 15% from $785.7 million in fiscal 2009. License revenue was $238 million, up 4% compared to $230 million last year, while maintenance revenue was $507 million, up 25% compared to $405 million last year. [Service] and other revenue increased 11% to $167 million. For the fiscal year, license revenue was 26% of overall revenue; product maintenance revenues accounted for 56%; and the remaining 18% came from professional and other services.

Gross margin for the fiscal year before amortization of acquired technology was 74%, which remained the same as last year. Pretax adjusted operating margin was 27.9% for fiscal 2010, up from 25.2% last year. Adjusted net income for fiscal 2010 was $178 million, up 34% compared to $132.8 million for fiscal 2009. Adjusted EPS for fiscal 2010 was $3.10 per share on a diluted basis compared to $2.49 per share for fiscal 2009.

Operating cash flow for the year was $180 million compared to $176.2 million last year. Absent the impact of restructuring and direct acquisition-related costs incurred during the year, operating cash flow would have been approximately [$215 million] in the fiscal year. We reported GAAP net income for the year of $87.6 million or $1.53 per share on a diluted basis compared to a net income of $56.9 million or $1.07 per share on a diluted basis in fiscal 2009.

On the balance sheet at June 30, 2010, deferred revenue was $220 million compared to $189 million as of June 30, 2009, and accounts receivable was $132 million compared to [$116 million] at the end of last year. Days sales outstanding were 50 days as of June 30, 2010 compared to 52 days for the previous quarter and 51 days at the end of Q4 last year. In fiscal 2010, our total shares outstanding were approximately 57.4 million shares on a diluted basis.

As part of the Vignette acquisition, we stated that the Open Text and Vignette restructuring charge would be approximately $32 million to $40 million in our income statement. As previously stated, the cost savings resulting from these actions will continue to be an annual run rate savings of approximately $40 million to $50 million based on a combined cost-base pre-merger.

The negative effect of foreign currency movement on adjusted EPS for the quarter was $0.06. During the fourth quarter, we made three acquisitions -- Nstein for approximately $34 million, inclusive of approximately 178,000 shares issued for $8.5 million; Burntsand for approximately $11 million; and New Generation for approximately $4 million.

During Q4, Open Text implemented a legal entity operational and intellectual property ownership simplification strategy. Open Text has been extremely acquisitive since 2004, during which time it has acquired 12 publicly-traded companies and numerous smaller organizations, each of which had a unique organizational structure.

Since the acquisition of Vignette, we were able to concentrate on formulating and finalizing a plan for the needed overall restructuring. Before this restructuring, we had operated legal entities in approximately 25 countries around the world through over 90 corporations and branches. We've implemented plans to eliminate 45 of the 90 legal entities in the Open Text organizational structure. The resulting realignment will also provide a blueprint into which future acquisitions may be integrated effectively and efficiently.

Furthermore, as we integrate our various product offerings into one seamless software and services suite of numerous options and add-ons, we concluded that consolidating our intellectual property ownership within two primary legal entities and two jurisdictions appropriately reflected the economic reality of how we do business and how our customers view our product offerings. We've also now enhanced the legal protection of our intellectual property and created more clarity surrounding the ownership of our IP assets.

Ownership of the IP was centralized in a Luxenberg entity and a Canadian entity. Luxenberg is an advanced, commonly used jurisdiction within the EU, with strong legal protection, and a stable economy and government. Luxenberg also has attractive tax legislation and social security systems of companies, employers, and employees. Reflecting our long history of carrying out R&D activities within Canada, and our advanced R&D capabilities and workforce within Canada, it made sense to have a Canadian entity also retain ownership of part of the global intellectual property.

This restructuring and consolidation of our IP and revised transfer pricing arrangement between our legal entities will result in an effective tax rate in the range of 12% to 14% and cash taxes in the range of 5% to 10%.

Looking at the Company's pretax adjusted operating model, we're confident in our plan to maintain expenses in the 14% to 15% range for development; 21% to 23% range for sales and marketing; 8% to 10% for G&A; and 2% for depreciation. Our annual adjusted operating margin is expected to be in the range of 25% to 30%.

Now I'll turn the call over to John.

Thank you, Paul. Hello, everyone, and thank you for joining us.

I'm satisfied with our performance this quarter and for the fiscal year. We started the year with a focus on profitability and we exceeded our targets. Our revenue for the quarter came in a little lighter than we'd planned, mainly due to currency fluctuations, but remained on track with our expectations when normalized. All regions have shown strength, and even with the continued tough economy, I'm very comfortable with our outlook for fiscal 2011.

As Paul said, in the quarter, we generated $68.5 million in license revenue, with North America responsible for 52% of revenue; Europe, 41%; with the remaining 7% coming from Asia-Pac.

Our pipeline is growing and we're seeing some larger transactions on the horizon. After a tough Q3, Germany hit its sales target and Europe exceeded its target on an FX-neutral basis. Although we focused on compliance-related sales, we're now seeing customers purchasing from several different product groups, including web content management and digital asset management.

In Q4, we saw license revenue broken down by vertical as 20% from financial services; 18% from services; 17% from technology; 12% from public sector; 9% from base materials; 6% from healthcare; 5% from industrial goods; and 5% from consumer goods; and 5% from utilities. On an annual basis, we saw 16% from financial services; 15% from services; 15% from technology; 15% from public sector; 12% from base materials; 10% from industrial goods; 5% from healthcare; and 5% from consumer goods. In the quarter, 39% of our license revenue came from new customers and 61% from our install base.

Taking a closer look at the transactions in the quarter, we had 11 transactions over $500,000 and an additional four transactions over $1 million. This compared to 15 transactions over $500,000 and three transactions over $1 million in the same period last fiscal year. On an annual basis, we had 29 transactions over $500,000 and 18 transactions over $1 million.

Examples of significant wins in the quarter include Deutsche [Bender] Bank, who purchased Open Text Enterprise Content Management Suite, including Content Management Lifecycle, case management, and email management. DuPont purchased additional Open Text licenses to support their SAP business practice with Open Text document access for SAP solutions. Mitsubishi Heavy Industries also purchased Open Text document access for SAP, and the Open Text solutions will allow Mitsubishi with its integrated enterprise, purchasing process, and efficient improvement in their procurement services.

From a sales standpoint, we closed the quarter with a combined sales force of over 340 quota-carrying sales execs, slightly up from last quarter as we begin the new fiscal year.

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 41% in the quarter and 41% for the full fiscal year. I'm happy with our channel strategy and believe it's properly balanced between our direct sales and partner resales.

Speaking of partners, we announced a full support across the Open Text ECM Suite for Microsoft Office 2010 and Microsoft SharePoint server 2010, allowing customers to confidently migrate to the latest platform and take full advantage of Open Text rich content management expertise. We further expanded our reseller agreement with SAP to include Open Text solutions for employee information management, which also allows companies to create complete digital records of all personnel-related documents.

In addition, Open Text assigned an important technology sharing and distribution agreement with Oracle that will leverage a broad range of Oracle platform technologies to deliver a new suite of enterprise content management solutions for archiving, eDiscovery, and legal risk mitigation. This will be just like our SAP and Microsoft go-to-market relationships.

On product announcements in the quarter, we announced the availability of Website Manager 10.1, featuring integrated points to many customer social applications, including Facebook and Twitter. We also announced a range of enhancements and new social media capabilities to our social media offerings as part of the Open Text ECM suite. Yesterday, we announced Open Text's Semantic Navigation, an innovative tool that helps audiences naturally navigate through volumes of information based on their inherent meaning of content and increasing Web marketing and online search effectiveness.

We also announced rights management services for the Open Text ECM suite, which allows enterprises to safeguard confidential sensitive information from an authorized access.

Our mobility strategy is progressing well with the launch of Open Text Everywhere last quarter. This offering has many unique capabilities for our ECM customers, and I believe has potential to increase our customer base on a variety of platforms such as iPhone, iPad, Blackberry, and Android. We also continue to look at areas such as social media on smart apps for ERP integration to our growing customer base.

Recently, for the first time, Open Text social media and mobile offerings were utilized at the G20 Summit. Policymakers from around the world were able to collaborate over secure social networks [in] software in advance and during the G20 summit in Toronto. In addition to secure Web access from everywhere in the world in real-time, delegates were also able to access applications from their Blackberry's, iPhones, and iPads.

The application supported multiple languages to enhance the ability of delegates to work productively. We believe this is the first time the iPad has been used in secure collaboration.

Turning to our outlook for FY '11, the industry analysts continue to tell us that they expect ECM license revenue to grow in the 4% to 8% range. And within that context, we're happy with our operating model.

With that, I'd like to open the line for questions.

(Operator Instructions). Scott Penner, TD Newcrest.

Just to start, Paul, with a couple of things. Number one is what happened with the tax situation in Q4. And then if you could also touch on, just over the past few years, there's been a material negative on the cash flow statement from deferred taxes. Can you sort of give us a brief explanation on what that's expected to be next year?

Yes, so as you know, we've been paying taxes naturally around the world. As I indicated on the call, we organize our business and re-organize our operations. And effectively, going forward, our cash tax position, [as I said], will be in the 5% to 10% range.

So, I think the best way to look at that, Scott, is that in terms of what we've done with the business organization and restructuring, we have certainly set up certain tax positions in our balance sheet; but that going forward, if you think about FY '11 and beyond, you shouldn't see the effect of cash taxes on the operations to be any greater than 5% or 10%.

Okay. So just to translate that a little bit, when you talk about your adjusted tax rate, are you talking about the 5% to 10% or the 12% to 14% in that case?

Well, in that case, the adjusted tax rate for purposes of our adjusted earnings would be the 12% to 14%. And in the past, for example, in fiscal -- in this year, I stated that the tax rate, of course -- effective tax rate we use is 27%, cash taxes 10% to 15%. But for our adjusted earnings going forward, we'll be using the range of 12% to 14%. Cash taxes will be lower and probably in the range of 5% to 10%.

Okay. That gives me something to chew on. Now the -- just one other thing for you, Paul, and that is the repurchase of treasury shares in the quarter -- are those -- was that actually shares bought in the marketplace?

There was shares bought in the marketplace for performance stock and it's part of our [LTEP] Program.

Okay. I got it. And then just, John, on the industry analysts, aside from their forecast of 4% to 8%, when you look at your business, where is your organic growth going to come from? If you could talk just to some of the success maybe with the cross-selling to Vignette initially and what you'd expect there. And then parse it into what you might expect from the new product to revenue -- I mean, where is really the growth opportunities going to come from?

I'd say really three areas, Scott. One is, as you just said, we are beginning to see the cross-selling opportunities across -- particularly between Nstein and Vignette, but also with our core base across multiple products. So cross-selling as we are, we've begun to see that in Q4, and from our pipeline, we see that going forward this year.

There is a number of also new products coming out, particularly around the smartphone and social media that we believe will be able to sell additional products in that area. And then, finally, with the SAP partnership, the Microsoft and the recent Oracle announcement, we believe the partnership program is gathering speed as well. So between new products, cross-selling and our partners, we feel very comfortable. We're also seeing the government sector on a worldwide basis really picking up.

Okay, then, if I could just finally -- and I'm sure others will dig into this as well, but just a little bit more on exactly what the change or the nature of the partnership is with Oracle and exactly who's --?

Probably the easiest way to think of it, Scott, is if you think of the work we do with SAP on archiving and accounts payable, vendor invoice management, that kind of thing, that's exactly what we'll be doing in the Oracle environment.

Okay. And that's effective immediately?

Yes, it will be -- it was signed yesterday and will be announced publicly in the coming days.

Okay. Thanks.

Mike Abramsky, RBC Capital.

Thanks very much, John. John, this is the second guidance miss in a row. And could you just -- you said earlier that excluding, I think, differences in FX impacts, it was in line with your prior expectations. Can you give us some detail on what the FX impact was to revenue versus expectations? And were there any deals that did slip, for example, into the following quarter?

I'll take the first part, Mike, to follow. Again, as you know, we just consistently report the FX effect on our bottom line, which I reported was [$0.06]. But I think that if you apply the change in the major currencies, as you know, we do give a table of our percentage of revenues, expenses and currencies. If you just apply the change between those FX rates Q2 to Q4, I think you'd readily come to the number that backs up John's statement.

Right, but what I was asking was per your -- what you had already factored in, relative to what you factored in.

So when we did the announcement last quarter, there was the downward swing from FX -- so what the FX at that point we had factored would have got us into the range that we talked about. Since the fluctuation since that point --

Well, Q3 to Q4, I think, I mean just the euro and the pound, each were down about 7% in the Q3 to Q4 period.

So how does that speak to visibility going forward? I just want to clarify -- normally, you say you're maintaining an outlook stance relative to first call. So, first call is 6% on the top line. What are your assumptions -- is that an organic growth outlook that you're therefore comfortable, since you say 4% to 8% market growth was the first call EPS top line, first call number?

Let me make sure I understand this, Mike. What we're basically saying is if we looked at what we said in Q3, we did hit that number in Q4 -- FX neutral. So from a visibility, we were pretty clear on our number.

For this past year, we've been working with salesforce.com, really looking at the backlog, scrubbing the backlog. And what I've seen in the past two quarters is a much better accuracy than I've seen before. Going forward this quarter and next quarter, we feel very comfortable with what we're seeing in the pipeline and the accuracy of that number. But it really was an FX issue.

Okay. But I'm -- sorry, but to repeat it, but what about your normal stance of comfort with first call? In this case, are you reiterating that normal stance, which is you're comfortable with first call [F] '11 revenue and EPS and that that's really an organic growth outlook?

So, I mean in the -- so, one, we're comfortable. If we look at the growth range that we're seeing in the context of our operating model, we feel comfortable. In the past, the analysts on first call have been generally accurate, based on the information we've given them.

Okay. And then on the EPS first call outlook, if you tax adjusted now for your new tax outlook, are you comfortable with that outlook? In other words, obviously, that outlook -- that first call number for EPS is built in the prior tax assumption.

Yes -- Mike, just to be clear, again, it's Paul -- we're not commenting now on first call estimates for FY '11. What we're doing is continuing to reference our operating model by giving our view of the market growth and our comfort with the market growth. And as we continue to do that, as we have in the past, as John said, historically, I think you and your compatriots have done a good job of forecasting; but we're not actually making it on a first call for FY '11.

Okay. Now, you have done that in the past. Is there something different in terms of visibility or otherwise that would cause you not do that this time?

No, we said we feel comfortable with, as we've said in the past, generally been accurate based on the information we've given. We're comfortable with that.

Okay. On the restructuring charge, could you give us a little bit of detail of what's behind that? Is it people? Is it other cost? What functions are you trimming? And do you expect further -- what predicated that?

Well, Mike, the restructuring for this year, as you know we've been talking about it since Q2, right, and post-Vignette we did a restructuring and we announced restructuring, and filed an 8-K with respect to Vignette and Open Text. And so what we've done pretty much to the year is we've completed the plan as planned, and the charge to the earnings for the year are in the range that we stated. So that as far as restructuring charges, we're complete. The only thing that should be going forward are any acquisition costs and charges related to acquisitions, which as you know, go through the P&L now.

So like a small amount right now is forecast for Nstein and I guess to some extent, Burntsand. So maybe $2 million or $3 million. But as far as our FY '10 restructuring plan, we're done except for some future cash payments -- the charges have now been incurred in this fiscal year.

Okay. And then lastly, would your outlook for F '11 or for -- would we expect to see the trend, excuse me, on F '11 pro forma operating margins improve, given the recent cost-cutting?

Yes. So I did update the model and we did move up the pre-tax adjusted operating margin from 22% to 27% to 25% to 30%.

Okay. Thank you very much.

Paul Steep, Scotia Capital.

John, maybe you can talk about -- there's been -- we're now at year end, any sales force changes, any other organizational changes that we should think about into the 2011 pipeline and sales execution that would cause any hiccups, delays, any other surprises?

I don't believe so, Paul. The only thing that usually at the end of the year, there's people who haven't performed well in the year, there's a little bit of culling there. But most of that has been done. And so as well as from an organization standpoint, we're very comfortable with the organization structure today, so there should be very little change going forward.

Okay. That's good. Secondly, I guess, if we actually look, you've covered a lot on -- I think people are going to focus in on the license here. And I guess just trying to get your feel for -- and I know Scott touched on it with the three items that you thought were going to drive growth -- do you see any changes in the market that really are affecting license beyond customer buying? Has there been anything changing in the ECM market that you think is different, that we all are missing, or --?

The only thing that I've seen different -- so we believe from a global economy, we think next year is going to be tough, although the analysts say that -- or the industry analysts, that we and security are one of the few that they do see growth continuing.

We are seeing bigger deals. We're seeing significantly multimillion dollar deals. And while we try to break them up, in some cases it's very difficult to do. But if we look at our pipeline, we've seen significant buildup over the last two or three quarters.

Okay. Have the close rates massively varied? Obviously, the big deals varied the close rates, but I guess people are going to point to SharePoint as a potential risk here. Has that really changed anything at this point?

To be honest, we see SharePoint has expanded our market for customers who need DoD certification for records management. We've seen a lot of pickup there with SharePoint. Digital Asset Management as well as our interfaces to SAP and Oracle are really enhancing that relationship. So we're actually -- we're seeing SharePoint helping us.

Whereas over the past, sure, that there was some deals that were taken away; now we're seeing a much more closer relationship as well as, as I said, we are seeing things like web content management pick up that have been kind of slow for the past 18 months. We're also seeing Digital Asset Management pickup that has been slow for the past 18 months.

Okay. And then the last one for me -- obviously, the cash balance is building. Maybe between you and Paul, the perspective on it, again, the readiness for the Company providing price as always for another large M&A. And then if in lieu of a large M&A, how we think about that debt position.

I'll start off. This is Paul. The deposition again is, as we said, at LIBOR plus [225] three years ago with the debt; I think we're pretty comfortable with that. And we'll continue to reiterate the most likely use of cash would be acquisitions which, of course, I'll let John answer that part of the question.

I've seen a number of analysts who are concerned that within our market space there are quotes, not many left of size. But as I think you've seen from IBM and Adobe and others, there are quite a few within the space but also in adjacent spaces with domain expertise, applications, et cetera, that would be significant for us. So we have quite a pipeline that we're working on. And so we see it continuing certainly for the foreseeable future.

But is there -- let's assume the pipeline is there -- do you think you're ready at this point?

We -- okay. Sorry, yes, yes. Over the past year, if you look at it, we feel very comfortable that Vignette is now integrated, and the structuring that we've been doing getting ready to be a $1 billion corporation both in sales, marketing and in infrastructure -- we're ready.

Great. Thanks, guys.

Steven Li, Raymond James.

Paul, a question on your costs. The sales and marketing, is it abnormally low this quarter because of the timing of the closing of some of the acquisitions? Or is this a good base going forward, so we're looking at $48 million just in marketing on $240 million of revenues?

I think -- again, just going to a margin operating model in the range I gave you. As you know, we've come out at the [lower] end of the range this year. I don't think that trend would change significantly, certainly stay within the range, of course, but the -- I'll call it, the positioning with that range should probably stay pretty much what you've seen it at for this year. I'd look at the year, though, and not just at the quarter, because there's quarterly fluctuations as you know. So I think about it in terms of the year.

So at the high end of the range?

Yes.

Okay. And on the FX impact, can you talk about the FX impact on your maintenance? And also if you had any -- did you recoup any back maintenance this quarter?

Oh -- no, we didn't really have any material changes in terms of -- I know you're referring to previous quarters that we had a bit of a pickup, but that was normal for this quarter.

And what was the FX impact? Was it positive or negative on the maintenance?

Yes, you know it was -- yes, it was slightly negative, because as you know, maintenance is a pretty good proxy for a percentage of revenues that we show you on our table.

And it would be similarly for license, it would be proportionately negative for license revenues?

Yes, that's correct.

Okay. And one other question, Paul, how much more is there to come from Vignette in terms of annual savings? You talked about $40 million to $50 million annual savings range?

We pretty much hit the run rate. As we said last quarter, we were tracking a little bit of ahead of plan in the cost-savings, so I think the earnings which would speak to that this quarter. We have pretty much hit the pace of savings in the fourth quarter, actually in the fourth quarter. So I wouldn't look for any quarterly increases beyond what you're seeing now. We're on that $40 million to $50 million run right now.

Okay, great. And just one last question. On the Q1 seasonality, so for license we should expect the same as historically, so down 25%, 30%?

Well, what we're commenting on again in terms of seasonality is to continue to look at the history. I would say not so much last year's history but previous year's history. There's no reason again that our business model would suggest there's much difference in terms of -- that there is seasonality, but we see less volatile than last year.

Okay, thanks.

Eyal Ofir, Canaccord Genuity.

Just a quick question on the restructuring charges you talked on earlier. You said there was $2 million for it in fiscal 2011. Is that a monthly -- sorry, a quarterly rate? Or is that an annual rate?

Yes, that would be about what I estimate for the recent acquisitions in Q4. Again, the restructuring for FY '10 is behind us. It's been charged other than some cash flow left, which will not hit the P&L, of course.

So what I'm just suggesting is that, as you know, any restructuring charges for acquisitions or restructuring costs now for acquisitions did go through the P&L. The $2 million or $3 million was the full amount I would anticipate for the two acquisitions we did or the three acquisitions we did in the quarter. And most of that should probably show up in Q1, perhaps in Q2.

Okay, perfect. Now, drilling a little bit down further into the results for the quarter, I'm actually going into the September quarter, are you guys seeing the momentum that you saw in Q4 in Europe and Germany continuing in the September quarter?

Yes, we are, yes.

Okay, great. And then (multiple speakers) --

(multiple speakers) [There was] a little bit of kind of slowdown in the UK around the elections, but that picked up quickly and we're seeing that continue.

Okay. And how about the US? The US seem to be obviously stronger in the June quarter. Are you seeing any slowdown there? Or is it still tracking (multiple speakers) --?

We are -- so, from a macro level, obviously, I'm concerned about the economy in the US, but from a pipeline, we're seeing is healthy and we're seeing some of these very large deals there.

Okay. And the large deals, are they coming from the channel or are they coming from direct sales?

It's a bit of both.

A little bit of both, okay. Okay, great. I'll pass the line. Thanks.

Derrick Wood, Wedbush Securities.

What was the license contribution from SAP in the quarter?

So, we don't report it separately, but it's been trending and it would be somewhat similar -- it's been trending around the 10%, Derrick.

Okay. So that's still the case. Can you give us some color as to when Oracle -- when you think that could start to contribute meaningfully -- or contribute to revenue?

My guess would be probably end of second but probably third -- [third/fourth] quarter.

And then you mentioned geographically some comments about what you're seeing. What about vertically? And specifically, I know there's some questions around potentially longer procurement cycles out of the government vertical. What are you seeing in your pipeline out of government?

We're seeing pretty much -- the governments haven't prolonged that much and we're seeing a pickup. So this past year, Canada has been very strong; UK has been very strong; but we're seeing the US pick up as well as Asia-Pac governments pick up.

On the other verticals, oil and gas still continuing to be strong. Seeing a lot of work in that area, but we're also seeing manufacturing picking up and in kind of medium-size manufacturing organizations.

Okay. Thanks for that color. Can you just remind us what the breakdown is on revenue of back office versus front office? Is it still kind of 60/40 -- 60% back office?

Yes, I would say that, yes. We are seeing front office picking up.

Okay. That's it for me. Thank you.

Blair Abernethy, Stifel Nicolaus.

Just want to talk on the M&A front a little bit further. This quarter, two of your acquisitions were more in the services side of things. Is this something you're looking at doing more of in the future?

The two were particularly -- Burntsand's -- obviously, they have very strong expertise in SharePoint integration, and so we're seeing a lot of work in that area. And so we would probably see others and certainly building up that practice to support the Microsoft Business.

The other small one was actually in the Oracle space where they are all Oracle experts. And so, again, you will see us being -- picking -- as the pipeline picks up, you will see us getting smaller service organizations with that kind of expertise as well.

Is this a change to your revenue mix, do you think, going forward, John or --?

This past year, the revenue mix has been somewhere around 16% to 17% for professional services. You might see it getting up to 20%, but these services are mainly either installation, training, hand-holding, or some kind of integration. So, for example, with SharePoint and SAP or SharePoint and Oracle, that kind of thing. So it's not -- I don't see us getting into the fix business or anything like that. It is much more very product-related.

Okay, great. And was Nstein the only business that had maintenance base then, presumably?

Yes.

Okay. What did that contribute in the quarter?

We don't break it out, but it'd be -- it will be a small contribution for this quarter.

Okay.

Very small.

And just onto your larger transactions, John, I'm just wondering if you can give us some more color on what and where -- what verticals and what solutions were driving that this quarter?

Yes, so a couple of things. One is government, obviously, and particularly around eGovernment. What we have seen is these -- as you may know, we did a contract with the Province of Ontario awhile back. That is on track that they've started initial designs. They have acquired initial seeds and we would see that growing over the coming years significantly. There are similar ones to that in the government space.

We're also seeing in -- as I said, manufacturing, both discreet and process manufacturing, and some of these transactions we've been working on with people like SAP for probably two years that are now coming to significant fruition.

Okay, that's great. Thank you.

Gabriel Leung, Paradigm Capital.

John, any chance you can give us an update on how sales or I guess uptake of some of the new apps like Social Media and the Open Text Everywhere application is progressing thus far?

Yes, the -- mainly, so far -- again, a lot of uptake from government, a lot of interest in government, but we've also been trying to work with our existing base on the kind of limited releases to get their feedback, get their interest. There has been significant interest.

The G20 where we ran the whole collaboration of that was a great success. We've had a lot of interest from government agencies and ministries based on what they saw there. So it is -- our initial feedback is very positive.

Okay. Then moving over to the Oracle partnership -- sorry, I missed this in the beginning -- but can you elaborate again what -- which parts of your products that they will be selling?

So, basically, it will be a joint technology exchange where -- think of it like SAP, where they have got some accounts payable, archiving, vendor invoice management type of applications that would be used within the Oracle environment, PeopleSoft environment, et cetera. So it would be selling into the existing Oracle base that have those applications that now need to do much more content management, document management, archiving, those kinds of things. So very similar to what we've done with SAP over the past 10 years.

And do you have a target as to when you might see Oracle get to that sort of 10% contribution as well?

I think over the next -- as I said, I think you'll start seeing some development in the next two quarters. But my feeling is there is quite a demand in that space because there really isn't anything else -- and the Oracle [inbox]. So we haven't -- I mean, we've had a long and healthy relationship with SAP, so how long it would take to get up there, it could be a couple of years.

And you don't anticipate any conflicts with their offering -- which one is it? -- Stone?

No, we don't. This is totally separate from that.

Okay. Just a couple of housekeeping items here. Just on your commentary as it relates to the industry growth expectations, I guess, of 6% to 8%. You meant probably in constant currency, right?

Right. Thank you, yes.

And then as it relates to the lower, I guess, effective tax rate and range, when should we start modeling that into our adjusted EPS estimates? In the current quarter?

Yes.

Okay. And should we anticipate any incremental costs associated with this, I guess, this restructuring?

No, any cost that result from that were born mostly in Q4 already.

Okay. Just lastly, I think someone had asked this already, Paul, but there wasn't any one-time items in the maintenance line was there this quarter, was there?

No. No, there wasn't.

Okay, perfect. Thanks a lot, guys.

Sera Kim, GMP Securities.

Just one -- a couple questions. First, just going back to that Oracle, just so I understand, you mentioned that joint technology exchange. Will it be of the similar reseller agreement that you have with SAP, just so I understand that (multiple speakers) --?

It's moving in that direction, yes.

Okay. So not -- it won't be like that today as when you announced it but it will move towards that direction?

Right.

Okay. And in the quarter, was Oracle flat, up and down? And I'm wondering if you can provide SAP and Microsoft as well, if it was flat, up or down in the quarter?

Oracle was fairly flat. We've been working on this for quite awhile so we haven't been as preoccupied with our sales. But both SAP and Microsoft were up for the quarter.

Okay. And with Microsoft, you mentioned earlier that your market has expanded with the new share plan and your ability to really offer additional product offerings with that offering. I'm just wondering, have you started to see the impact of that? Or is that something we will see going forward and possibly starting in fiscal '11?

No, actually, it wasn't just the new SharePoint. We had begun to see it probably a year ago. So we have been seeing it this year and we are seeing it pick up.

Okay, great. Thanks, that's it. Thank you.

Paul Lechem, CIBC World Markets.

On the large deals you're starting to see in the US, is this a result of your reorganization of the sales force to be more account-focused? And if not, can you talk about how the traction is going in the newly reorganized sales force in the US?

So, actually, Paul, on the big deals, the answer is no. Many of these we've been working on for quite awhile, and as I said, they're coming to fruition over the next quarters or so. But, obviously, being that big, they do -- the sales cycle is a little longer.

The new organization that we're seeing on a worldwide basis really -- so it's been in place for six months now. We believe we will see optimization and increased productivity in the existing sales force that will help some of this growth as well next year. So we're feeling very, very bullish right now with the sales team. And this account-focus has helped.

This has maybe been asked before, but has there been any extraordinary level of turnover in the sales force, unplanned turnover in the last little while?

No, not really.

Okay. Your breakdown between new account sales and into your installed base, it seems to have been skewing more to new customers, which ordinarily wouldn't be a bad thing; but my question is, what's happening in the install base? Why, if anything, [is the] sales activity into the install base going down at this point?

So, actually, I think it's the new -- with some of the relationships we've had with SAP and Microsoft that are going up, where we have been introduced to new customers rather than our base going down. Our maintenance renewal rates are still the same. Our customers in general are the same. So (multiple speakers) --

Well, I mean, when we do the math -- I mean, given that license revenue growth is relatively modest in the last year, especially on an organic basis, there's been quite a steep increase in the new customer SKU. So, actually, it would -- the license revenues for the install base probably would have gone down. You talked in your growth outlook for next year about cross-selling into that install base as being a big initiative. Are you saying take-up of that and where do you see MSuite take up with those?

I think -- well, first piece, Paul, would be we have this past year been holding off on release, so the new release will be coming out in September ready for our user conference in November. So there has been some waiting of our customer base, waiting for those new releases. So I think you'll see some pickup there.

But from what we're seeing on the cross-selling, this is part of this new release as we've integrated Nstein into our new products, as we've made the connectivity to Vignette much easier and [DAM] to our product suites. So we should be seeing that cross-selling picking up as we start the new year.

Is there any special compensation for the sales team to go after the install base? Or is there any SKU versus -- one way versus another and new customers versus install?

I think, mainly, Paul, it's where we've given them named accounts. And those named accounts are existing customers. So the new accounts are really coming from our partners SAP, Oracle, and Microsoft and a little bit people like Deloitte and Accenture. And so then our existing direct sales forces are farming our existing base.

Okay. Well, I'll leave those. One last question, actually, on the usage of cash. You seem pretty clear that M&A is your top priority but I haven't heard you talk about a potential dividend. If not now, when could you potentially even see putting a dividend in place?

(technical difficulty) I mean, it's just not in our current discussions. I mean, when I say that, of course, we always talk about it, but just continue to see good opportunities in the marketplace at the kind of pricing that you would expect us to acquire at. So, with that kind of pipeline that we see in the future, we just haven't got that on our planning schedule at this point for cash.

So it's not even in the horizon?

Not in the -- certainly not in the next year or so, I wouldn't think.

Okay. Alright, thank you.

Ralph Garcea, Northland Capital Partners.

Just on the M&A strategy, if you look at the Burntsand deal and the New Generation deal, I mean, did you do those because Accenture and Deloitte were focusing more on SAP and you needed the strength in the bench and then SharePoint and then the Oracle side or --? I guess that's one part of the question.

And then, two, where is Accenture and Deloitte with regards to the strategic alliances you have with those two? Where are they focusing most of their business?

Yes, so I think, Ralph, the best way to think of it would be both Accenture and Deloitte are focused much more on the business solution, if you will, whereas the Burntsand's guys are much more technically into the systems integration, networking, application, connectivity, if you will. So it's a much more technical skill than what Accenture or Deloitte, they would typically tend to spend more time on the -- building the business solution applications.

(multiple speakers) The second part of the question would be, we're seeing Deloitte really doing well both North America and Europe. And I believe Accenture is probably flat with last year -- doing okay.

So you see joint teams then on some of the larger deals? And are Accenture and Deloitte driving some of these multimillion dollar deals? Or is it mainly the SAP sales force?

It's certainly Deloitte and SAP. Accenture, I believe there might be one or two. And in the past year, they have helped us with one or two.

Okay. Thank you.

(Operator Instructions). Scott Penner, TD Newcrest.

Sorry, just, Paul, I think you mentioned, if I'm doing the math, the cash restructurings for the year were about $35 million of cash flow impact, is that right?

That's correct.

Okay. And then just -- I want to come back to the tax rate again, the 12% to 14%. Just is that -- I mean, that's a phenomenal decrease from where it was before. Is that the kind of level that is sustainable? And then, without any nicer way to ask this, has it been blessed by your auditors?

Yes -- I'll give you a short answer and a little longer one. Yes on both accounts. This tax planning instruction was thoroughly prepared, researched. We have tax opinions and in some cases advanced tax rulings by a major firm. I don't think there's any -- Deloitte does a lot of tax planning. KPMG were also, as our auditors, very involved in the review of that plan and very content with how we finalized the restructuring of that plan and all of our accounting therefore. So yes, this has been really clearly a plan reviewed. And we, again, we have lots of appropriate structure in place for it.

So -- and back to your first question, yes, we see this a sustainable rate going forward.

Okay. Thanks, guys.

Okay. Thank you, Scott. So with that, I'd like to summarize.

I'm pleased with the quarter and the fiscal year. Throughout the year, while we focused on margin and profitability and we exceeded our earnings expectations in both the quarter and the fiscal year, we will continue to focus on our customer base but with some of these new products and Social Media, smart apps for mobile and as well as a number of new opportunities with our partners, we remain positive on the outlook for 2011.

This concludes our call for today and thank you, everyone, for participating.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and you may now disconnect your lines.