Open Text Corp (OTEX) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Open Text Corporation fourth-quarter and fiscal-year 2012 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 today's conference is being recorded.

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

Thank you, and good afternoon, everybody. I would like to start off the call with the reading of our Safe Harbor statement. First, note that during the course of the conference call, we may make statements relating to our future performance of Open Text that contains forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast, or projection in the forward-looking statements made today. Certain material factors or assumptions were applied in drawing any such conclusion or while making any such forecast or projection as reflected in the forward-looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and the material factors or assumptions that were applied in drawing the conclusion while making the forecast or projection as reflected in the forward-looking information, as well as risk factors that may affect the future performance and results of Open Text, are contained in Open Text Form 10-K and Form 10-Q, as well as in this press release that was issued earlier today, each of which may be found on our website. We undertake no obligation to update these forward-looking statements, unless required by law. In addition, our conference call will include discussion of certain non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release, which may be found on our website.

And with that, I would like to welcome everybody to the call. With me today is Open Text President and CEO, Mark Barrenechea, as well as our CFO, Paul McFeeters. As with our previous calls, we'll read prepared remarks, followed by a question-and-answer session. The call will last approximately one hour, with a replay available shortly thereafter. I would also like to direct investors to the Investor Relations section of our website, where we've posted an updated PowerPoint that will be referred to during this call. We've also posted a summary table highlighting Open Text's historical trended financial metrics.

As a reminder, Open Text will be holding an investor briefing on the morning of September 6 at the New York Palace Hotel in New York. The presentation will feature new members of the management team and will provide a detailed review of our EIM strategy, as well as our new cloud services offerings and global distribution initiatives. This briefing will be webcast for those that can't attend in person, and all presentation materials will be made available on our website in advance of the meeting. Please contact our Investor Relations department for more detail.

Also, I'm pleased to announce that in the coming weeks, Open Text will be presenting at several investor conferences, including the Canaccord Genuity Annual Growth Conference in Boston on the 14 of August and the Deutsche Bank Access 2012 Technology Conference in Las Vegas on the 11 of September. Details of these and all other investor events are available in the IR section of our website.

And with that, I will hand the call over to Paul McFeeters.

Thank you, Greg. Turning to the financial results, I will highlight our fourth quarter and then fiscal year 2012. Total revenue for the quarter was $306 million, up 7% compared to $285 million for the same period last year. License revenue for the quarter was $78 million, down 2% compared to $80 million reported in the same period last year. Maintenance revenue for the quarter was $163 million, up 8% compared to $151 million in the previous year. Services and other revenue in the quarter was $65 million, up 17% compared to $55 million in the same period last year. Gross margin for the quarter before amortization of acquired technology remained relatively stable compared to last year at approximately 73%. Pre-tax adjusted operating margin before interest expense and stock compensation was approximately $85 million this quarter, compared to $74 million in Q4 of last fiscal year.

Adjusted net income increased to 12% this quarter, up from $61.7 million in Q4 of last year. Adjusted earnings per share was $1.17 on a diluted basis, up 11% from $1.05 per share in Q4 of the prior fiscal year. The sequential effect of foreign currency movement on adjusted earnings per share for Q4 was a negative $0.02. The adjusted tax rate for the quarter is 14%, the same as it was last fiscal year. Net income for the fourth quarter in accordance with GAAP was $8 million or $0.14 per share on a diluted basis, compared to $29 million or $0.49 per share on a diluted basis for the same period a year ago. There were approximately 58.8 million shares outstanding on a fully diluted basis for the fourth quarter. Operating cash flow for the quarter was approximately $80 million, compared to $52 million in the same period the prior year.

Turning now to our fiscal 2012 results, total revenue was $1.207 billion, up 17% compared to $1.033 billion in fiscal 2011. License revenue for the year was $294 million, up 9% compared to $269 million. Maintenance revenue was $657 million, up 17% compared to $561 million in fiscal 2011, and service revenue was $257 million, up 26% compared to $204 million in fiscal 2011. Gross margin for the year before amortization of acquired technology was 72.4% for fiscal 2012, compared to 73.6% for fiscal 2011. The reduction is partially due to revenue mix and some decline in customer support margins. The pre-tax adjusted operating margin, before interest expense and stock compensation, was approximately $330 million or 27.3% for fiscal 2012, compared to $285 million or 27.5% in the prior fiscal year.

Adjusted net income increased by 14% to $270 million at fiscal 2012, compared to $237 million in the prior fiscal year. Adjusted EPS was $4.50, up 13% compared to $4.07 in the prior fiscal year. The adjusted tax rate remained at 14%, the same as it was last year. Net income for fiscal 2012 in accordance with GAAP was $125 million or $2.13 per share on a diluted basis, compared to $123 million or $2.11 per share on a diluted basis for the same period in the prior fiscal year. There were approximately 58.7 million shares outstanding on a fully diluted basis for fiscal 2012. Operating cash flow was $266 million for fiscal 2012, an increase of $43 million compared to $223 million in fiscal 2011.

On the balance sheet, at June 30, 2012, deferred revenue was $270 million, compared to $266 million at the same time last year. Accounts receivable was $164 million, compared to $155 million at the end of the last fiscal year. Days sales outstanding were 48 days as of June 30, 2012, compared to 49 days at the same time last year. Our headcount remained relatively flat from last quarter at approximately 4,600 employees, of which 43% are in sales and services, 17% in customer support, 27% in R&D, and 13% in G&A. On July 2, we announced the closing of the EasyLink acquisition, adding an additional 540 employees.

This was a strategic acquisition for us, and Mark will discuss cloud strategy instant scale. EasyLink has made significant investment in their cloud infrastructure and gives us a broad data center footprint, with over 40 points of presence in 25 countries. In their last full quarter being -- before being acquired by Open Text, EasyLink closed approximately $44 million in total revenue. This was down approximately 5% year-over-year. While we would expect some attrition upon integration, we also expect to add additional revenues with our Open Text products that we will host in the cloud for cloud services.

At this point on a net basis, we would expect the cloud services revenues to remain fairly flat through fiscal '13. As we move into fiscal 2013 and as a result of adding the new revenue stream to our operations, we will now report cloud service as an additional revenue line, along with additional cost of sales line in our financial statements. I will also note that the gross margins will be presented differently in our financial reporting, compared to EasyLink disclosure, as Open Text will classify some items in cost of sales which were reported in their G&A, primarily regarding customer support activities. This reclassification will put the gross margin for this business in the 58% to 60% range, versus the 64% to 66% range that they had reported.

In our press release, we showed the percentage of revenues and expenses in each of our major currencies. Our major currency mismatch is between US and Canadian dollars, and we hedge up to 80% of that exposure. With the acquisition of EasyLink, our percentage of revenues in euros will reduce by approximately 6% of overall revenue. This will narrow the gap in the natural hedge of revenue and expenses in euros. Even with the dramatic drop in the euro in Q4, our net earnings were only affected by a negative $0.02.

We have updated our pre-tax adjusted operating model for fiscal 2013, as shown in our investor PowerPoint in the Investor Relations section of our website. As I noted, we had -- we have now four revenue lines after adding cloud services. We've also expanded the gross margin section to break out the gross margin ranges for our four revenue categories. Additionally, we've tightened some of the ranges for the operating costs. We expect our annual non-GAAP operating margin to be in the range of 26% to 30%.

Our recent acquisitions continue to have an impact on the overall operating margins from FY '12 into FY '13, including recently acquired EasyLink. We have also recently discussed continuing to invest in our distribution network. The combination of these will result in our fiscal '13 adjusted operating margin remaining relatively flat to fiscal 2012. Of course, our operating earnings will grow through organic growth from the business, as well as accretive acquisition of EasyLink. Our projected tax rate on adjusted earnings will remain at 14%.

In the past, we made reference to historical seasonality in our license revenues. While recent quarters have had more variability than in the past, we are still of the view that Q1 license revenues should be down 10% to 20% from Q4, and Q2 should be up in the range of 20% to 30% from Q1. We'd expect Q3 to be down in the 5% to 10% range from Q2, followed by Q4 trending up 20% to 30% above Q3 levels. Our customer support renewals remain in the 92% range, while our new maintenance averages 20%. So in summary, we're investing for growth while maintaining our margin of focus, cloud services is an exciting new business that is additive to our revenue stream and accretive to our net operating earnings.

Now, I will turn the call over to Mark.

Paul, thank you for the overview. Fiscal 2012 was another strong year for Open Text. I'm pleased with our Q4 license performance, which rebounded strongly after a challenging fiscal third quarter, and I'm excited about our fiscal 2013 outlook. Let me spend time today discussing three key attributes of our business and our future, growth, markets, and products.

Let me start with growth. Over the last seven years, year-over-year, we have consistently grown revenue, earnings, and cash flows. Over this period of time, we delivered a revenue CAGR of 16.5%, a cash flow from operations CAGR of 24.6%, and a non-GAAP earnings CAGR of 29.6%. These are solid metrics. We have crossed $1.2 billion in annual revenues, and we will continue to demonstrate that we are a disciplined earnings and cash flow generator.

With this foundation, we are turning our attention to further unlock the value of our business by focusing on organic license growth in fiscal 2013. Over the last eight months, we have completed organizational changes and executive hires, launched enterprise information management and the OpenText cloud. This builds upon our ECM heritage, customer successes, employee talent, and core competencies with a common goal in mind, organic license growth. Furthermore, BPM is back on track, sales force changes complete, and we delivered a solid Q4 license number. We enter fiscal 2013 executing with a growing pipeline, a stronger product lineup, expanded distribution, and an aligned internal plan to grow licenses.

Let me highlight two key executive placements from last quarter. We have strengthened our executive team with the addition of Greg Corgan as our EVP, Worldwide Field Operations. Greg leads the sales force and professional services organization. Greg led worldwide sales for other very large software companies, such as Computer Associates, Infor, and Fair Isaac, and has a 30-year proven track record of delivering results. Greg hits the ground running, focused on customers, revenues, and results. Muhi Majzoub recently joined us to lead our engineering group. I had the opportunity to work with Muhi at both CA and Oracle, where he proved himself as a world-class engineering leader who can deliver innovation and quality. Muhi has an extensive background in information systems. I look forward to Greg's and Muhi's contributions to Open Text for many years to come.

Let me transition to our growth opportunities. Number one and first, our direct sales force. We have great leadership. BPM is back on track, information exchange is a prominent part of our strategy, a growing pipeline, and we enter the year already executing with a solid quarter under our belts from Q4. Key industries. We have market share opportunity in public sector, defense, and national security, as well as life sciences and healthcare. And we are placing a stronger marketing and selling emphasis on these markets.

This is in addition to the other industries we're already strong in, such as financial services, energy, and manufacturing. We have a large install base with over 50,000 customers and 100 million users. And selling to an existing company, the customer, has a shorter sales cycle, easier account access, and a higher probability of winning. We placed a stronger focus on selling coverage to our top accounts and upselling the next part of our suite, selling more seats where it makes sense, and upselling new products such as our new cloud services. We are, of course, focused on growing our installed base as well. In Q4, 47% of our licenses were from new customers.

The fourth aspect of our growth opportunities is channel distribution and expansion. 39% of our Q4 license revenues touched a partner. As you can see from slide 15 of our investor deck, we have created a clearer distribution model and thus a stronger methodology for customer engagement. SAP is a strategic alliance with lots of room to grow. Overall, the channel represents a catalyst for even greater growth above our base business case.

Number five, market expansion. There are three key markets where we are seeing strong demand, and thus we allocated resources to go capture the opportunity; APJ, Latin America, and emerging Europe. These market have higher GDP growth rates, our products resonate well, and we expect to increase our wins in these geographies. And six, acquisitions are a core competency of the Company. We will continue to acquire where and when it makes strategic sense.

But let me be clear. Acquisitions will be additive to our views on growth, not just a means to get there. Collectively, these growth factors, plus our proven ability to deliver solid financial results, gives me great confidence in both the short- and long-term growth opportunity for Open Text. Once again, we are expecting growth in revenue, licenses, cash flows, and earnings, despite the macroeconomic environment, which speaks directly to the confidence in our fiscal 2013 plans. In addition, EMEA was 38% of our business in Q4, and it is a strategic geography for Open Text. And as Paul noted, we have reduced our net euro exposure.

Let me transition to markets. Software markets evolve. And those software companies who define, shape, and leverage those evolutions win. We have seen this before in the applications market, desktop software market, and platform technologies market, to name just a few. Suites of software always win. This is not a new software principle. It's a proven axiom.

The Open Text heritage is ECM, but this is not our end market. Our end market is enterprise information management, suites of software that manage enterprise unstructured information. EIM consists of ECM, BPM, CEM, information exchange, or as we call it, IX, and discovery. Open Text, as an independent software Company, is leading EIM. From what I can see, we have the best starting position. That's products, that's talent, that's references, and EIM is our singular focus. We are not distracted by building printers or laptops or servers, or caught up in the rip current of tablets or smartphones or gaming devices. Our 5,000 professionals are singularly focused on enterprise information management. Focus is an advantage, and EIM significantly expands our opportunity.

Let me highlight two important aspects of this focus. First, the addressable market, and then our increased ability to be a strategic partner to the CIO. In relation to the addressable market, EIM near triples our addressable market from $5 billion to $13 billion, and the market is expected to expand to $19 billion by 2016. This is outlined on slides 8 and 9 of our investor deck. Analysts see the market growing at 10%. We are committed to leading the market in each of our five pillars. Let me walk you through them.

In ECM, we are the recognized leader. What we see resonating with customers is mobile, social, and cloud capabilities, the ease of building bespoke applications, and deeper integration into ERP. ERP is the source for -- is the source of truth for structure data and processes as it relates to employees, suppliers, customers, purchasing, and assets. We can help CIOs open their data stores to new devices and access points, create more revenue opportunities, and lower their costs by enabling ERP data and processes with information. The next version of our Oracle ECM offering will be available in the second half of the fiscal year. I expect this release to offer Oracle customers compelling value, with integrated ECM and ERP.

Further, customers continue to ask us to either replace SharePoint, surround SharePoint with enterprise capabilities, or extend SharePoint for ECM to EIM. SharePoint is designed as an extension to Office. It is not designed as an ECM or EIM platform. As a proof point to this, we provide information governance, BPM, capture, learning services, and other solutions for SharePoint users that customers are adopting today. At the end of the day, we believe we can double our ECM revenues over time, and those who said 10 years ago, 5 years ago, or continue to say today, that SharePoint is a risk to our business model, had it wrong then and still have it wrong today. SharePoint is an opportunity for Open Text. Within Q4, we had important wins within ECM at the US Department of the Interior, L3 communications, General Motors, McCain Foods, Hasbro, Mosaic, and key UK defense organizations.

Let me transition to BPM. In BPM, we have been in this market now for one full year, and we're back on track. We just released the latest versions of process 360 and case 360 that have emerged as a top five provider. We are focused on case management and process enabling ECM. I had one CIO say to me last quarter that Open Text BPM is their strategic process platform for orchestration across their many ERP instances and bespoke applications and that BPM from Open Text is a strategic platform for them. Within Q4, we had key BPM wins at JPMorgan, AAA, Safeway, State of California, Capricorn Investments, Wendigo Bank, and Vision Service Plan.

In ECM, we are a top provider. The main focus in CEM today is social, mobile, and web-enabling enterprise content. We just released Open Text's Social Communities 8.2. In fiscal Q2, Tempo and Social Communities will be integrated and offered in the OpenText cloud. Customers who may have previously been looking at point solutions like Drop Box or Jive can consider Open Text for both capabilities, integrate it, enterprise ready, and secure in the cloud. Within Q4, we had key CEM wins at News Limited, the Polytech University of Hong Kong, Nationale-Nederlanden, and Hewlett-Packard. And if you viewed a London Olympics summer games photo, those images were managed from our ECM and digital asset management software. You can see our press release from Monday for more details on our Olympic summer games deployment.

Information exchange, or as we call it, IX, we have combined our Capture, Connectivity, RightFax and EasyLink capabilities into a single team and single strategy. This is a $3.2 billion market with double-digit growth rates. Post-EasyLink, we are the market leader in information exchange. I see this market as the largest undermarketed pillar within Open Text. I have elevated information exchange to the front page. With information exchange, we have new partnership opportunities with companies like Cisco, Xerox, and others. Within Q4, key wins from this group included the Mayo Clinic, McKesson, Nokia, and EMC.

Discovery is an emerging market for us, and we are committed to growing our presence here. We have solid capabilities today, including our enterprise information discovery and assessment products, information classification, and semantic analytic products. Even though Discovery is a newer market for us, within Q4, we already had some key wins, including Skadden Arps, Baker and McKenzie, the Law Society of British Columbia, Australia Post, and Digital Risk. Let me transition and highlight two CIO conversations from last quarter, each of which detailed the importance of EIM.

Speaking with CIO of a top ten pharmaceutical company, he described to me that they have completed their 20-year, $100 million investment, in their ERP journey. And they are now turning their attention to create a singe platform to manage all unstructured information for R&D, marketing, finance, legal, compliance, and quality. This enterprise information management platform is as important as ERP to them. And this CIO is shifting their ERP dollars to EIM. ERP is a single source of truth for transactions. EIM is a single source of truth for unstructured information.

And a second conversation with a CIO of a major global bank. They are looking to transform their business to be lean, digital, and offshore. They, too, are complete with ERP and looking to define that next generation of information flows, such as capture, digitize, e-sign, store, search, and archive. This is an information business flow from capture to archive, not unlike ERPs campaign to cash flow. And this CIO is keen to deploy capture to archive from one provider of enterprise information management. By focusing on EIM, this places Open Text in the office of the CIO discussing business transformation, business value, information flows that are strategic to the customer's business, larger opportunities, and longer-term engagements. EIM is our vision. EIM is our future.

On to the third area for today, products. We have greatly simplified our messaging and how we connect our products to customers. We have four key priorities. One, enterprise information management. Two, our five pillars, ECM, BPM, CEM, IX, and Discovery. Third, governance and security capabilities. And fourth, mobile, social, and cloud. This is our focus as we enter fiscal 2013. We will go through each of these priorities at our Investor Day on September 6 in New York City. But I want to spend time today on just one aspect, our new cloud services business.

The OpenText cloud is a combination of EasyLink and Open Text capabilities, resulting in the industry's largest dedicated EIM cloud, two billion transactions over the last year, 1.5 million end users, 25,000 customers, data center infrastructure in 25 countries. This is a global platform that is scalable, enterprise ready, and secure. The OpenText Cloud is a fundamental building block for the Company. OpenText cloud services are a new revenue stream for us, not a swap of existing revenues. We define cloud services as applications as a service and managed hosting.

Let me get into this a little deeper. We can now complete the need for our customers, whether that need is on premise, their place, or in the cloud, our place. Our applications as a service offering includes information exchange for fax, EDI, e-mail, SMS, and broadcast voice. These information exchange services are an important part of a business process, and in many scenarios, the start or end of that business process. We recently had an important win with CVS Pharmacy for order fulfillment through our cloud.

By the end of the calendar year, we will be adding new services that include capture, managed file transfer, work flow, and archive services to our cloud. As I mentioned earlier, Tempo and our Social Communities products will move into the cloud as well. Record management will also move into the cloud. These are all new revenue opportunities for us. Taken together, this next release of EasyLink with Open Text products will allow customers to deploy capture to archive in the cloud by the end of the calendar year.

Let me define managed hosting in the OpenText cloud. Managed hosting is Open Text selling a license, selling maintenance, and selling additional services for compute hosting, data storage, and application monitoring and management. This, again, is a new revenue stream, not a swap of existing revenues. The EasyLink infrastructure and their expertise provides for global service. The demand has been there, and now that we have market offering, we can participate, and this is another path to organic license growth.

In summary, as we enter fiscal 2013, we have the right leadership, the right strategy, and we are executing. We are focused on organic license growth and maintaining our discipline to earnings and cash flow while further scaling the business. Enterprise information management is resonating with customers and positions Open Text as a strategic partner to the CIO. The cloud is a fundamental building block for Open Text, BPM is back on track, and information exchange a more prominent part of our strategy. Furthermore, with a strong Q4 license quarter, a growing pipeline, and confidence in our strategic outlook, I expect to look back on fiscal '13 as a year of license growth, the cloud, EIM, and strong earnings and cash flow.

With that, operator, we'd like to open the call to questions.

Thank you.

(Operator Instructions) Your first question on the line today comes from Tom Liston with Versant Partners. Please go ahead.

Thank you. Good afternoon. Mark, just -- you did allude to it a fair bit, but on one of the slides, you talk about the growth drivers. I think there's nine or so, and acquisitions was the bottom one. I wonder if that's by design. The second part of that, it's kind of interactive, but is there one or two key elements of those nine or so initiatives that you think will drive the most impact to a new license revenue?

Sure. So, Tom, thanks for the question. So, yes, acquisitions is listed at the bottom list by design. As I highlighted, we've put plans in place to where we believe we will grow license organically here in 2013. And, of course, we'll continue to be a strategic acquirer.

Now in terms of the path to grow license, number one, of course, is our direct sales force. Number two would be focusing on our install base, better coverage of our install base. Third is looking at expanding our channel, and so on, sort of as I highlighted in the script. So, I think we've got some really good paths in place for organic license growth as we enter '13, and if we look back on Q4, we had a good execution in Q4 on license. So, one, direct sales force. Two, coverage model. New markets, channel expansion.

Your next question on the line comes from Scott Penner with TD Securities. Please go ahead.

Thanks. First of all, Mark, can you give us an update on the hiring relative to the goal of adding 20%? And then, how do we think about the people coming over from EasyLink in that context?

Yes, so two questions there. Let me start on EasyLink. We're a disciplined acquirer, and we know how to integrate companies, and when we integrate quickly, we have -- we accelerate our successes. We've taken the approach on EasyLink to integrate the business very quickly. We've defined a very clear mission, a very clear focus, and have integrated the business from day one with capture connectivity in FDDG into one team.

If we look at their business model, they have sort of their set of top accounts, but the majority of their business is actually indirect and through the channel. So we moved very, very quickly in integrating the business and doing that on day one, and that just comes from lots of experience and history that when we integrate quickly, we accelerate our successes.

In relation to the hiring, the hiring is going well. We enter fiscal '13 executing, and our hiring, I would say, is going well. We're more focused right now on increasing yield and productivity, and on a certain level, we'll always be hiring, as we continue to grow the direct sales force. But in short, I would say it's going well. I'm pleased with it. And we enter the year executing.

Your next question on the line comes from Eyal Ofir with Canaccord Genuity. Please go ahead.

Thanks for taking my question. Just on the BPM, you talked about how you've stabilized it. Can you guys give us any -- either revenue indications or any form of metrics to help us get to that same conclusion?

This is Paul. As you know, we're not breaking out the revenue in that business, but put it this way. In our original planned discussions, our Q4 will be back on track. As you know, in the middle of the fiscal year, we were disappointed, but I can tell you that Q4 came back to our original plan, so that's why we're confident with it and that was with respect to the top line and the margin.

Your next question comes from Blair Abernethy with Stifel Nicolaus. Please go ahead.

Thanks very much. Mark, I wonder if you can give us a little more color on progress with the Oracle relationship and anything to update as well on the SAP side.

Sure thing. So in terms of Oracle, as I've talked about in the past, it's really about our capabilities. That's the starting point of the discussion, how compelling is our offering. I think we've cracked that code. And we will have the next version of our product out in the second half of the year with more capabilities integrating into their financial suite and into their database, extending the ability to have information flows for purchasing customers' assets, as well as archiving underneath that environment. So I'm very pleased with the progress on the road map and what we feel we need to deliver there.

I highlight that on SAP we've been at it for near three times as long as we have at Oracle, but I would say we have our road map together at this point. There's no barriers to entry, and working with the Open Text field, we're winning business, but we'd like to bring our capabilities up to par as we have on SAP.

As it relates to our SAP relationship, it continues to be very strong. We see lots of growth opportunity around the world, and I continue to hold the relationship and structure up as one of the best partnerships and structures that I've ever seen. So I'm optimistic about the continued growth with SAP, and I think we have our Oracle road map in line for something compelling to deliver at this point.

Your next question comes from Chris Thompson with National Bank. Please go ahead.

Great. Thanks. Mark, you touched on Microsoft in your prepared statement. To your point, 2013 is now available in public beta. Can you give us an overview of what new functionality over SharePoint 2010 is in that release, what new solutions Open Text is launching to complement SharePoint 2013, and maybe just touch on your revenue growth expectations with the 2013 solutions going into the next couple years. I know you said it grew, but how much do you think you are going to expect Open Text revenues to grow tied to Microsoft? Thanks.

Fair enough. So as I said in the script, customers are looking towards us to either replace or surround SharePoint. And SharePoint was primarily designed and still is designed today as an extension to Office. And in our review of Microsoft SharePoint 2013, we don't see really big advancements within the product line. So it doesn't change our view and outlook. Their new APIs and some new protocols we have to talk to, but our strategy hasn't changed. We are going to stay focused on governance and compliance, extending it for BPM, extending it for Capture, extending it for CEM.

So in looking at '13 I would describe it more as being platform current than having to change our approach. So we're taking the view we just need to be -- like any next version of an operating system, you need to become compliant and current. So we need to become compliant and current on SharePoint 2013, but we're not seeing great advancements functionally, and it doesn't change our approach or views on SharePoint. We don't break down -- we don't break out publicly we're expecting A, B, and C from SharePoint Microsoft SAP. But I would expect to see growth from the Microsoft products in 2013.

Your next question on the line comes from Brian Freed with Wunderlich Securities. Please go ahead.

Good afternoon. Can you talk a little bit about how you look to balance your license revenue growth targets with opportunities for software as a service and hosting?

Brian, thanks for the question. So in managed hosting, we're still selling a license and we're selling maintenance, and our hosting fees are additive. They're additive to what we're doing. On the applications as a service, these are new additions to our revenue stream. And at the end of the day, it's really going come to down to customer choice of how they want to deploy, whether they want to deploy on premise, or whether they want to deploy in our cloud.

But our current view is that when we look at applications as a service, we don't use the term SaaS, applications as a service and managed hosting, we see these as additive revenues and not swaps, not swapping like for like. And again, on managed hosting, as the customer purchases a license, they can either deploy it at their place or deploy it at our place. And if they deploy it at our place, we have an additional revenue stream.

Your next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Hi. Good afternoon. Mark, can you provide some more color on the partnership front. You've highlighted the channel as playing a key role in your growth. And can you talk about some of the initiatives you've been undertaking on that front, whether there's been any recent developments worth highlighting with respect to the US partnerships, for example, or were there any other channel partners? Thank you.

Sure thing. Thanks for the question. Yes, we have done a lot of thinking, and as we entered FY '13 as to our distribution model, and, of course, we got a lot of attention on our direct sales force, as we should, but we see really six other layers here. We see a strategic alliance layer, system implementers, bars, distributors, OEM, and technology partners. So this is framing our thinking, framing how we engage both with customers and partners, and we're going to execute to this seven-layer model on FY '13 and beyond.

What's new in the model? I would say you are seeing a stronger emphasis on companies like Ingram Micro and Software House International. I announced -- I talked about in the script a growing partnership with Cisco and Xerox, so those are the points I would highlight to progress. One, clearer thinking on the layered distribution model, and progress with companies like Cisco, Xerox, Ingram Micro and Software House International.

Your next question comes from Michael Nemeroff with Credit Suisse. Please go ahead.

Thanks for taking our questions. It's Mike Anderson for Michael. Two questions. One is for Mark, at just more of a high level. To use a sports metaphor, what inning do you think that Open Text is in, specifically in relation to you and the management with respect to the changes that you want to make after your initial assessment of the Company?

And do you think there are many more changes to make? And if so, how would you focus those changes? And then one quick one for Paul would be, can you just comment a little bit on the sequential decline in customer support revenue? Thanks.

Very good. So I love baseball analogies. So when I look at the functional structure and the individuals leading those functional structures, we're complete. We're done. With the addition of Greg Corgan, I look at Greg as a capstone to the changes that we really started to put in place over seven months ago. And thus we're entering fiscal 2013 executing. So, I don't know, maybe it's the 7th inning stretch, in terms of having completed those changes.

I'm Paul. On your second question, our deferred revenue balance actually peaks at the end of Q3 and declines each quarter subsequently thereafter. If you look at the history, that's our pattern. And that's because we have a large percentage of contracts that renew in December, including the highest deferred balance, technically January 1, of course, but when it shows up in balance sheet at the end of Q3, and declines Q4, 1 and 2, and then picks up again in Q3.

So that's been our pattern. There's nothing underpinning that that's directionally of concern, balance of the deferred revenue, etcetera. That is just the seasonality pattern of our contract renewal and deferred revenue correspondingly.

Your next question comes from Richard Tse with Cormark Securities. Please go ahead.

Yes, Mark. Sounds like the functional changes are all done, but you've got a lot of products you are going out with. So can you explain to us how you have, or how will you organize the sales force around these multiple product areas, whether that's done now or what you have left to do here?

Fair enough. Thanks for the question. The model that Greg and I both believe in strongly is that our AEs need to know the strategy of the Company, they need to know the broad strokes of the portfolio, and have intimate knowledge of the customer and their needs. And then behind that, need to have specialized teams who can help them advance an opportunity in more specialized areas.

I believe an AE should know our core offerings of ECM and BPM but also have specialized teams behind them who can get into maybe more of the nuanced areas of our core offerings or more of the specialities within our portfolio. That concept of AE direct engagement with accounts and specialty teams have put in place as we enter FY '13. So we've gone through our account segmentation work, our coverage maps, and our special specialty teams as part of the completed work as we enter fiscal '13.

I would also note that in terms of our sales force structure, we have less than 5% of relationships changing between an AE and a customer. So, of all of our completed work, we kept a very mindful eye that we are not going to change relationships between the Company and a customer.

Your next question comes from Tom Liston with Versant Partners. Please go ahead.

Thanks. Just a follow-up. Obviously, you breakdown total revenue by geography, but within EMEA, and I know it's flat, but can you talk about the license revenue environment and close rates and what you're seeing post quarter, and just a general view of the pipeline there?

EMEA specifically?

Well, yes, and is there pockets of strength, whether it's Germany or UK? Obviously, you're hearing a lot of different things. Some vendors are having a really tough time in Europe, some are actually doing pretty well, considering the backdrop of the macro. So, could you give us your view on how you fit and where there is perhaps some strength or concerns?

Fair enough. So in Q4, EMEA was roughly 38% of our book of business. As I look at the pipeline coming into Q1 and the first half of the year, feels relatively strong, actually, for us in EMEA. We seem to be executing well in France, Germany, UK, and I would note that many of our offerings help customers in this time around governance and compliance.

So I'm actually cautiously optimistic on our EMEA outlook as we look into fiscal 2013. We're also looking at emerging Europe, with opportunities in places such as Czech Republic, Poland, Russia, Turkey, to name a few. So, I think on that balance overall, I'm cautiously optimistic about our ability to execute in fiscal 2013.

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

Paul, can you just lay out any expected charges related to the EasyLink acquisition and whether the CapEx profile of the Company changes post-acquisition?

I'll deal with CapEx first, Scott. Last year, we spent about $28 million in CapEx. And this year, that will only increase slightly, maybe $2 million or $3 million, so that combined, it really is not going up materially. We're going to be able to continue to invest in the infrastructure in the cloud, so that would be our expectation there.

It's a little early on the restructuring charges, although obviously there will be some. So my best range estimate right now would be between $12 million and $15 million. Maybe one to two in this quarter, probably flat, equally in the following three-quarters for the fiscal year.

Your next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.

Thanks for taking my question. Large deals rebounded nicely from Q3, but it looks like mid-sized deals are only up one over Q3. Can you provide some detail on some of the dynamics at play between large deals and the mid-sized one? Also, how many of the large deals closed in the quarter were ones that slipped from Q3 and subsequently closed in Q4? Thanks.

Paul, thanks for the question. Now, I'm not seeing any dynamic, per se, on the mid-sized deals, how the mix worked out, if you will, in the quarter. So I don't see any dynamic there, per se. There's no doubt that some of the deals from Q3 that were pushes did close within the quarter, which certainly helped, I think it was eight or nine deals that we had over $1 million in Q4.

Your next question comes from Eyal Ofir with Canaccord Genuity. Please go ahead.

Thanks. I just have a quick follow-up question. On the commentary you made on the cloud offerings, Mark, can you just talk about what your plan is from a global market strategy once you launch all the applications in the cloud? And if you do target potentially some SMB accounts as well, do you go through a different channel as well? Thanks.

Yes. Thanks for the question. Our initial focus is our installed base. We have a good size installed base. We know the customers, we know how to engage them. I would classify us as a traditional enterprise Company, going after Fortune 10,000 firms. So we're not looking to really change our go-to-market model to increase adoption of our cloud. I'd say we're going to go after our installed base and remain focused on the large enterprise firms around the world.

Your next question comes from Chris Thompson with National Bank. Please go ahead.

Great. Mark, Tom Jenkins a couple years ago used to talk about the growth opportunity in China, and I couldn't help but notice recently Huawei announced a global technology partnership agreement with SAP. And I haven't heard you talk about China since you have been at the helm at Open Text. Could you maybe walk us through your view on the growth opportunity in China?

Sure. Good question. APJ was roughly 9% of our revenues in fiscal '12. And it's certainly one of -- albeit on a smaller base, one of the exciting -- more exciting geographies for us, in terms of a growth number. We have beachheads in Australia with EasyLink. Our Japan business could near double year-over-year. We have a strong hub in Southeast Asia out of Singapore going after Malaysia, Indonesia. And part of our market expansion for fiscal 2013 is both India and China. And within China specifically, it's a close alliance with SAP within China, and both India and China have upsides for us.

But if I look into fiscal '13, with the addition of the EasyLink business, we are going to near double our business in Japan. We're strong in ANZED. We've got a strong hub in Southeast Asia out of Singapore. Two of the greater growth opportunities for us is India and China. Our China strategy is very tightly aligned SAP, and within India, I'd say it's a little more aligned with the large system implementers, such as Whitpro, In Process, and Tata Consulting Services. More to come on that through the fiscal year.

Your next question comes from Gabriel Leung with Paradigm Capital. Please go ahead.

Thanks. Just got a question for Paul. I wanted to go back to an earlier question around the maintenance revenues. I think the question was why -- if you had any color as to why the maintenance revenue itself declined quarter for quarter. And I think your explanation talked about deferred revenues. But just looking specifically at maintenance revenues, should we read anything into the fact that maintenance revenues was down $3 million or so on a quarter-for-quarter basis?

Good question, Gabe, thank you. That is all due to FX. There's absolutely no trending, again, there's no trending concerns there underlying deferred maintenance. But, of course, in Q4, by itself is where we had the dramatic drop in the euro, and certainly our maintenance line has -- the typical representation of our percentage of revenue is around 25% in euro, and that had that impact on it. So that, again, was strictly an FX effect.

That concludes our question-and-answer session. I will turn the call back over to Mr. Barrenechea for closing comments.

Well, I would like to thank everyone for joining us today. I'm really pleased with our Q4 and fiscal '12 results. I hope you can see from today's call that fiscal 2013 is an important year for the Company, with our focus on organic license growth, in addition to our continued focus on solid financial metrics. We enter fiscal 2013 executing.

If you have not had a chance, please see our investor deck and financials under our investors section of Open Text.com. And we appreciate your feedback on how we present Company information. Paul and I look forward to seeing you at our investor day on September 6 in New York City at the Palace Hotel. Please see Greg for the details. This concludes our call today.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect your lines.