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

Transcription

1 PARTICIPANTS Corporate Participants Greg Secord Vice President-Investor Relations Paul J. McFeeters Chief Financial Officer John Shackleton President, Chief Executive Officer & Director Other Participants Scott Penner Analyst, TD Securities Thanos Moschopoulos Analyst, BMO Capital Markets (Canada) Mike Abramsky Analyst, RBC Dominion Securities, Inc. Richard Tse Analyst, Cormark Securities, Inc. Stephanie Price Analyst, CIBC World Markets, Inc. Tom Liston Analyst, Versant Partners, Inc. Kris Thompson Analyst, National Bank Financial Brokers Sera Kim Analyst, GMP Securities LP Pardeep Sangha Analyst, PI Financial Corp. Eyal Ofir Analyst, Canaccord Genuity Corp. Blair H. Abernethy Analyst, Stifel Nicolaus Canada, Inc. Ralph M. Garcea Analyst, NCP Northland Capital Partners, Inc. Michael A. Anderson Analyst, Morgan Keegan & Co., Inc. MANAGEMENT DISCUSSION SECTION Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the OpenText Corporation First 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. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Wednesday, October 26, 2011 at 5 p.m. Eastern Time. I will now turn the conference over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead. Greg Secord, Vice President-Investor Relations 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 OpenText or its subsidiaries. These are all statements that 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 a projection as reflected in the forward-looking information. Additional information about the material factors or assumptions that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or a projection as reflected in the forward-looking information, are contained in Form 10-K and Form 10-Qs of OpenText, as well as in our press release that was issued earlier today FACTSET Copyright CallStreet E 1

2 Before we begin, I d like to announce that OpenText will be hosting an Analyst Day at our Content World conference in Orlando, Florida on Wednesday, November the 16th. The Analyst Day agenda will feature product demonstrations as well as executive presentations with an overview of sales and operations, our product roadmap, as well as profiling other strategic areas of the business. As with previous Analyst Days, the program will be integrated with the conference itself, and the participating analysts will have full freedom to interact with the conference attendees and customers on site. More details are available on our website or by contacting our investor relations group. And with that, I ll turn the call over to Paul. Paul J. McFeeters, Chief Financial Officer Thank you, Greg. Turning to the financial results, I will highlight our first quarter of fiscal year Total revenue for the quarter was $288 million, up 32% compared to $217 million for the same period last year. License revenue for the quarter was $65 million, up 53% compared to $43 million reported for the same period last year. Maintenance revenue for the quarter was $162 million, up 25% compared to $130 million in the previous year. Services and other revenue in the quarter were $61 million, up 36% compared to $45 million in the same period last year. Gross margin for the quarter before amortization of acquired technology was 72% compared to 73.3% in the same period last year. The decrease is primarily related to the initial write-down in maintenance revenue of $2 million due to the acquisitions of Metastorm and Global 360. Pre-tax adjusted operating margin before interest expense and stock compensation was $73 million this quarter compared to $62 million in Q1 last year. Adjusted net income increased 18% to $59 million this quarter from $50 million in the same quarter last year. Adjusted earnings per share was $1.01 on a diluted basis, up 17% from $0.86 per share for the same period a year ago. The sequential effect of foreign currency movement on adjusted earnings per share for Q1 was a positive $0.02. Adjusted tax rate for the quarter is 14% the same as it was last fiscal year. Net income for the first quarter in accordance with GAAP was $35 million or $0.60 per share on a diluted basis, compared to $22 million or $0.37 per share on a diluted basis for the same period a year ago. There were approximately 58.6 million shares outstanding on a fully diluted basis for the first quarter. Operating cash flow was $45 million compared to $49 million in the same quarter last year. The overall decline in cash flow is primarily due to the impact of slightly higher DSO of 45 days in the current quarter which was 43 in the same period a year ago as well as one-time cash payments due to costs related to acquisitions in this quarter. On the balance sheet at September 30, 2011, total revenue was $261 million compared to $266 million as of June 30, 2011 and accounts receivable was $144 million compared to $155 million at the end of last fiscal year. Days sales outstanding were 45 days as of September 30, 2011 compared to 49 days at June 30, 2011 and 43 days at the end of Q1 of fiscal In July 2011 we announced our acquisition of Global 360. Total consideration paid was approximately $260 million in cash. We recorded an accounting adjustment of $3.7 million to the acquired deferred revenue from Global 360. In addition, in September 2011, we acquired Operitel Corporation, an Ontario-based company specializing in Learning Portal solutions, for approximately $6 million in cash FACTSET Copyright CallStreet 2

3 There s no change to our pre-tax adjusted operating model for this quarter, and we expect our annual operating net margin model to continue to be in the range of 25% to 30%. Our recent acquisitions continue to have an impact on the overall operating margins in FY 12 as we continue to bring them up to OpenText s operating model. We anticipate that this will improve through the year, but will not be fully on target until fiscal 13. The full details of our operating model are also available on our website. Last quarter, I mentioned that we will be raising new debt in the amount of $600 million. During the quarter, we proceeded with this transaction and are nearing completion with the expectation that we will close within a couple of weeks. We ve gone to market by way of term loan A and expect the pricing to be within the range of LIBOR plus 2.25% to 2.75%. From the proceeds, approximately one half will be used to pay off the existing term loan B of $285 million and a revolver of $48 million which was drawn to complete the closing of Global 360. Now, I ll turn the call over to John. John Shackleton, President, Chief Executive Officer & Director Thank you, Paul, and good afternoon, everyone. I m pleased with our performance for the quarter. With over 52% increase in licensed revenue year-over-year and a 17% increase in adjusted earnings per share, we delivered strong value to our shareholders. By concentrating on existing install base and focusing on new sales in emerging markets, we have a good balance of opportunities in the pipeline. Even in this tough economy, we remain comfortable with our pipeline and margin targets for fiscal As Paul mentioned, in the quarter we generated $65 million in license revenue with North America responsible for 51% of revenue, Europe 41%, with the remaining 8% primarily coming from Asia- Pac. While we re still navigating the economic challenges of global IT spend, we re seeing particular pickup in emerging markets with areas like China being well-served by our partners and territories such as Brazil flourishing under our own internal sales team. Overall, we could close the quarter with a combined sales force of approximately 425 quota-carrying sales execs. In Q1, we saw license revenue broken down by vertical as 19% from business services, 19% from technology, 14% from public sector, 12% from financial services, 10% from base materials, 7% from consumer goods, 7% from healthcare, 4% from industrial goods, 4% from utilities and 4% from conglomerates. In the quarter, 47% of our license revenue came from new customers and 53% from our install base. Taking a closer look at transactions in the quarter, we had 15 transactions over $500,000 an additional 7,000 sorry, an additional seven transactions over $1 million. This compares to three transactions over $500,000 and two transactions over $1 million in the same period last year. Examples of significant wins include the global engineering firm Hatch, a long-term customer of OpenText. They ve extended their investment in Content Server as the main project repository serving as their primary platform for customer collaboration during active projects. Hatch has also extended their solution to include Content Lifecycle Management. The EADS Group, a global leader in aerospace and defense, purchased OpenText s Extended ECM for SAP solutions and Employee File Management for SAP solutions. These solutions will help the Group make processes simpler and more integrated. Klöckner, European s largest independent distributor of steel, purchased several OpenText solutions including Management for Microsoft Exchange, Application Governance & Archiving for Microsoft SharePoint, OpenText s Extended ECM for SAP solutions and Vendor FACTSET Copyright CallStreet 3

4 Invoice Management. The main objective for the purchase were to increase efficiency in a centralized architecture and to fulfill international compliance requirements. We re also pleased to announce Citizen1, a social collaborative platform for research and development in South Africa, now uses OpenText Social Workplace. Citizen1 was established in collaboration with the South African Academic CIO Forum and sent to the Chief Operating Officer s research in Africa. In addition, in conjunction with Commonwealth Secretariat, we announced plans to introduce Commonwealth Connect, an innovative cloud-based social media portal. This will be introduced to the Heads of Commonwealth at the Government Meeting taking place in Perth this week. This is similar to our G20 application. License revenue from partners and resellers was approximately 44% in the quarter. SAP continues to track at just over 10% of our annual license revenue. Speaking of partners, we had a few announcements related to Microsoft this quarter. We announced the availability of a new version of OpenText for Microsoft Exchange featuring improved support for large or geographically dispersed environments. This enhanced Records Management capabilities and easier and faster administration. We also released Legal Content Management for Microsoft SharePoint designed for law firms and corporate legal departments using Microsoft SharePoint At Oracle World this month, we had lots of partners and prospects showing interest in our Fusion stack. We continue to see growing demand for OpenText s content access and accounts payable for Oracle applications. The pipeline remains strong for these new business areas. The consolidation of Metastorm and Global 360 is going well. As mentioned on the last quarter call, we expect some typical disruption in first year license sales. The license revenue run rate for both Metastorm and Global 360 business are expected to decline in about the 10% range for the first year. However, once the consolidation is complete, we expect the BPM business to return to normal growth rate in fiscal As Paul mentioned, in September we acquired Operitel, a small company based in Ontario, Canada specializing in Learning Management Systems and Enterprise Learning Portals. Operitel solutions includes social and mobile learning management. Turning to our outlook for FY 12, the industry analysts continued to tell us that they expect ECM license revenue to grow in the 7% to 11.5% range over the next few years. Overall, we remain confident in our pipeline and are happy with our current operating model. With that, I d like to open the line for questions, operator FACTSET Copyright CallStreet 4

5 QUESTION AND ANSWER SECTION Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Scott Penner with TD Securities. Please go ahead. <Q Scott Penner TD Securities>: The contribution from partners, 44% is obviously pretty strong versus the last quarter for sure. Just any color as to whether, I mean, as you said SAP is still above 10% whether that uptick is related to more so from Microsoft or Oracle? <A John Shackleton Open Text Corp.>: Quite a bit from Microsoft, Scott, as well as also we did quite a bit with some of the systems, doing [ph] various (13:16) like Accenture and Deloitte. <Q Scott Penner TD Securities>: And that uptick is that related to primarily to the Global 360 acquisition? <A John Shackleton Open Text Corp.>: No, it s pretty much across the board, Scott. <Q Scott Penner TD Securities>: Okay. And then similar question on the new name customers, 47% is a higher number that we ve seen in some while. Just any color as to I guess what these new customers are interested in? <A John Shackleton Open Text Corp.>: So some of that s, Scott, was from Global 360 and Metastorm but also from partners like SAP and Microsoft. And again, across the board, some of it was around compliance but others it would be more on the productivity efficiency side of things. And we re pretty good balanced between the two. <Q Scott Penner TD Securities>: Paul, do you have the contributions from Metastorm and Global 360 handy there? <A Paul McFeeters Open Text Corp.>: Yeah, so Scott, we no longer report Metastorm so we won t be announcing it here. The Global 360 contribution had a $18.3 million in revenue and before special charges, so an adjusted EPS at $0.02. So it was accretive already this quarter. <Q Scott Penner TD Securities>: Okay, great. And then I was also going to ask about the cash impact of both the deferred revenue write-down and then the cash impact of charges in the quarter? <A Paul McFeeters Open Text Corp.>: Yeah, the revenue write-down is in the cash impact. As you know it s an accounting adjustment of $2 million. The cash impact for restructuring this quarter was about $6 million, a little over, about $6.5 million and the Q2 we would expecting additional accounting charge of about $15 million and the cash would flow out from that, so Q2 about $8 million and about $5 million in each of the next two quarters in the fiscal year for cash. <Q Scott Penner TD Securities>: And that charge $15 million, will that pretty much clear out what you had expected? <A Paul McFeeters Open Text Corp.>: Yes. That will, yes. <Q Scott Penner TD Securities>: Okay. And then just lastly, John, any comments around seasonality for Q2 over Q1, which has typically been a pretty big quarter? What do you say about it? <A John Shackleton Open Text Corp.>: So actually I think probably the most thing I m pleased with this quarter is this Q1 has really got us getting us back to the typical seasonality that FACTSET Copyright CallStreet 5

6 we had before. So as opposed the last year where it was a much bigger swing, I think this is we re now back to our more traditional model of where we re literally 25% to 30% would be in Q1 with a where we go down in Q2, 5% to 10%, in Q3 to 4 we would go up 10% to 15%, Q4 would be down, sorry Q4 would be up... <A Paul McFeeters Open Text Corp.>: Sorry, John but we re already taking it as a one quarter. <A John Shackleton Open Text Corp.>: Yeah, I m sorry. Yeah. <A John Shackleton Open Text Corp.>: Sorry, Scott. We re actually going, so 25% to 30% is for next quarter, so it would be typical seasonality 25% to 30% is what we... <A Scott Penner TD Securities>: Yeah, right. <A John Shackleton Open Text Corp.>:...would continue to think about. <A Scott Penner TD Securities>: Right so 5% to 10% down in Q3 and then sorry, John, Q4 would be... <A John Shackleton Open Text Corp.>: Up, up 10% to 15%. <Q Scott Penner TD Securities>: Okay. Thanks guys. I ll pass the line. <A John Shackleton Open Text Corp.>: Sorry on that one. But the net-net year-over-year, it would feel pretty comfortable. Operator: Our next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead. <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Hi. Good afternoon. Just on the last points regarding the license seasonality for next quarter, does that factor in the fact that Global 360 should be down? <A Paul McFeeters Open Text Corp.>: Yeah, I think Global 360 down is somewhat impacted already in this quarter but yes. I mean, again, as you know we don t give specific guidance, but we already spoke about Global and Meta being a 10% reduction in license revenue in the forward 12 months after acquisition and we re still on that same view. <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Okay. And I realize it s probably very small but what was the contribution of Operitel in the quarter? <A Paul McFeeters Open Text Corp.>: Definitely is small, less than $1 million. <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Okay. Europe looks like it performed well. What are you hearing in Europe from the field as far as your pipeline there just given the current macro environment? <A John Shackleton Open Text Corp.>: Yeah, the Germany looks to be very strong as does Scandinavia. U.K. government a little weak but we ve actually seen some good move in the commercial side of the U.K. and then kind of within the Southern Europe, France is looking okay. Spain, Portugal a little weak but Italy also doing okay. So given our mix in Europe, it s a good the strong German and Nordic offsets the kind of weakness in the U.K. government FACTSET Copyright CallStreet 6

7 <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Okay. And sort of unrelated question, are you seeing any weakness at all in the public sector or financial services segments? <A John Shackleton Open Text Corp.>: In Europe or... <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: No, just globally. I mean, it looks like public sector did well in the quarter. Financial services seems like it may have been a bit down as a percentage. Going forward, how is the pipeline looking there? <A John Shackleton Open Text Corp.>: Right. So on the government side, we particularly did very well this time on the U.S. government, which is for the first time in a while that it s been strong. Obviously it s their year-end budgeting. On the financial services it was down a little bit but we re still seeing good pipeline in that space on a global basis. <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Okay. And then last one for me, can you provide some more color as to how the Global 360 and Metastorm integrations are proceeding? I believe last quarter you talked about how it might take two or three quarters to fully integrate at which point license growth should resume. Is that still the expectation? Is integration there fully on track? <A John Shackleton Open Text Corp.>: Right. It is on track, it s on track well both from a technical integration as well as the sales force and marketing integration as well. We re very pleased with that. As we mentioned, we did announce someone coming in from the outside, heading up that group, and he s taken on that role now and things are looking, moving, progressing very smoothly. <Q Thanos Moschopoulos BMO Capital Markets (Canada)>: Okay. Thank you. I ll pass the line. <A John Shackleton Open Text Corp.>: Okay. Operator: Our next question comes from line of Mike Abramsky with RBC Capital Markets. Please go ahead. <Q Mike Abramsky RBC Dominion Securities, Inc.>: Yes, hi guys. Just the number of large deals is kind of jumping out. Can you talk a little bit about what s going on there? Is some of that, some of the deals that might have slipped from the last quarter? Are there some big deals in there of size? Aare they multi-year different types of opportunities? Can you give us a little bit of color on that please? <A John Shackleton Open Text Corp.>: Okay, Mike. Yeah, so one was a slip for the BPM side of the Q4 that I think we d mentioned last year from a European Bank. That did come in. But we are seeing in general some sizable deals on a global basis and with them are not only license but professional services and training as well with that. And so I was very encouraged with the 500 to a 1 million size. The 15 that s quite large. We haven t seen that many in quite a long time, and the pipeline seems to be very similar. So we re again, we ll try to keep these chunk so they re not so big, but we are seeing more large deals in the pipeline. <Q Mike Abramsky RBC Dominion Securities, Inc.>: And how do you feel about the revenue lumpiness risk and/or deal slippage risk given the environment? <A John Shackleton Open Text Corp.>: Well, that, I think that s what we ve been trying to work on, Mike, is almost discounting the big deals and trying to build a pipeline that s big enough to hit our seasonality without the big deals. And on the forecasting, we ve been very pleased with the sales teams. Their forecasting for the last two quarters has been very accurate. So we will continue FACTSET Copyright CallStreet 7

8 to work on that. So on the economy, we haven t seen it yet. On the big deals obviously they have been taking longer, but we built that into the model anyway. <Q Mike Abramsky RBC Dominion Securities, Inc.>: So when you talk about expected seasonality there could be some upside to your outlook in a sense that you re being conservative about trying to include those some of those larger deals? <A John Shackleton Open Text Corp.>: Well, we re being conservative given the economic outlook. <Q Mike Abramsky RBC Dominion Securities, Inc.>: Okay. <A John Shackleton Open Text Corp.>: So I feel very comfortable in the pipeline. We ve got a very healthy, still growing pipeline, but given the situation out there we re being cautious. <Q Mike Abramsky RBC Dominion Securities, Inc.>: Okay. And when you still call for, and maybe this is my last question, when you still call for the margin impact coming off and synergies coming in on your acquisitions over the next two or three quarters and starting to get back to your normal model in 13, what are some of the assumptions on that and do you feel do have good visibility into that? <A Paul McFeeters Open Text Corp.>: Hey, Mike, it s Paul. The assumptions are according to our own integration plan and synergies, which as you know we have reasonable experience there. So as John said, we re driving to our plan so our confidence of getting into FY 13, getting these acquisitions on the operating model is still good. <A John Shackleton Open Text Corp.>: And again, from the technical side, we haven t seen any issues. It s pretty much going as planned. Putting the two sales forces together and getting them focused on areas of where they ve got strengths is going to plan. And so while we do this organization obviously it s a disruption but I think going forward, we have a pretty good marketing plan as we come into the FY 13. <Q Mike Abramsky RBC Dominion Securities, Inc.>: Okay. Thank you very much. <A Paul McFeeters Open Text Corp.>: Okay, thank you, Mike. Operator: Our next question comes from the line of Richard Tse with Cormark Securities. Please go ahead. <Q Richard Tse Cormark Securities, Inc.>: Thanks. John, just following up on the integration question on 360 and Meta? <A John Shackleton Open Text Corp.>: Yes. <Q Richard Tse Cormark Securities, Inc.>: Can you kind of give us some specifics in terms of how you plan on sort of attacking the current install base? <A John Shackleton Open Text Corp.>: Yes so if you remember, Richard, 360, Global 360 is more content-centric and it s been more in the financial services area and the Metastorm is much more of the process-centric, focused more in the healthcare pharmaceutical, et cetera. So as we put the two together, providing what we believe is probably one of the best functional, within the BPM space, the best functional products on the market, we will be jointly going after the both of those markets with this additional functionality for both of them FACTSET Copyright CallStreet 8

9 <Q Richard Tse Cormark Securities, Inc.>: So would it be would your existing sales people be selling the entire, I guess, OpenText product line then? Or is that s going to be a special group for sort of this call these BPM products? <A John Shackleton Open Text Corp.>: Today, it s a special group that sell to BPM products as they are really selling more to the functional managers, not to the CIOs. But obviously we will be doing joint selling into our core base where we have strong relationships. <Q Richard Tse Cormark Securities, Inc.>: And then if you look at the core base, like, what you figure the penetration rates for these type of applications is it... <A John Shackleton Open Text Corp.>: With so... <Q Richard Tse Cormark Securities, Inc.>: [indiscernible] (25:08). <A John Shackleton Open Text Corp.>: What to date? <Q Richard Tse Cormark Securities, Inc.>: Yeah. <A John Shackleton Open Text Corp.>: Almost not yet. It s all there s not a lot of overlap today. So we ve identified about 10 key accounts in Europe and 10 in North America, and we feel the initial interest from our core base has been very positive. <Q Richard Tse Cormark Securities, Inc.>: Okay, and then just one last question on this the Oracle partnership, it looks like they have been sort of ramping up efforts in content management again recently, like, can you sort of give us big of an update on that partnership that you have with them and whether it s changed in any way? <A John Shackleton Open Text Corp.>: Yeah, we don t really see they ve been ramping up on the content management. In fact the [ph] stellen (25:53) products doesn t seem to be doing too much. On the Fusion side of things the product that we been working with them on is going well as well as the applications that we re selling on top like the Vendor Invoice Management, et cetera, seems to be going well. These things just take time to set up, but on the I m assuming you re talking about some of their recent acquisitions. We don t see them in this group at all. <Q Richard Tse Cormark Securities, Inc.>: All right, okay, great <A John Shackleton Open Text Corp.>: Great, thank you, Richard. Operator: Our next question comes from the line of Stephanie Price with CIBC World Markets. Please go ahead. <Q Stephanie Price CIBC World Markets, Inc.>: Hi gentlemen. <A John Shackleton Open Text Corp.>: Hi Stephanie. <Q Stephanie Price CIBC World Markets, Inc.>: Can you talk a bit about acquisitions? Your cash flow in the quarter was strong again. Are you planning on taking a bit of a breather while you integrate Metastorm and Global 360 or what should we be thinking there? <A John Shackleton Open Text Corp.>: So obviously Global and 360 put together are a sizable acquisition, but we do see like Operitel there are number of tuck-unders that we could see that would have minimal impact on the core group, if you will. So, I think you ll still see us doing some FACTSET Copyright CallStreet 9

10 <Q Stephanie Price CIBC World Markets, Inc.>: Okay. And in terms of geography, you talked about a bit about Europe, can you talk about where you are seeing the most momentum right now and if you have any concerns in any particular regions? <A John Shackleton Open Text Corp.>: Momentum definitely would be Latin America, particularly Brazil, as well as we re seeing some in China and Asia-Pac. The only concerns we would see would be U.K. government and what else? Potentially as we ve seen the Canadian, for the Canadian elections or the provincial elections we re seeing a little bit of slowdown there but we d expect to see that pickup as they re looking at their year-end budgeting. <Q Stephanie Price CIBC World Markets, Inc.>: Okay. And in terms of the pipeline, can you talk a bit about it by vertical in terms of where you re seeing strengths and weaknesses? <A John Shackleton Open Text Corp.>: Yes. Strengths we re seeing we are actually seeing government pickup in the pipe from pipeline looking out into the future quarters. Financial services also, but we re probably seeing strength in manufacturing, high tech that area as well. Telco is within that group. <Q Stephanie Price CIBC World Markets, Inc.>: Great. Thank you very much. <A John Shackleton Open Text Corp.>: Okay, thanks, Stephanie. Operator: Our next question comes from line of Tom Liston with Versant Partners. Please go ahead. <Q Tom Liston Versant Partners, Inc.>: Thank you. Good afternoon. I was just picking up on I think Richard s question on Oracle, certainly on Vendor Invoice Management and other areas you ll do well, but they re definitely being aggressive in the WebCenter offering that they have and it s specifically going after Documentum. It doesn t seem nearly as broad as ECM, but can you comment on how they re trying to work the WebCenter and some of the commentary from some of the industry participants worry about pricing pressure kind of evolving over the whole ECM sector because they re making some noise and racket trying to capture those document customers. Can we get some more color on that? <A John Shackleton Open Text Corp.>: So it s obviously the key area that we work with them on is the area of tying their structured applications I think like Vendor Invoice Management to the unstructured data. On the web content experience, we re not doing as much work with them in that area, but from a competitive standpoint we re not seeing much of them in this area either. <Q Tom Liston Versant Partners, Inc.>: So right is it too early to see if there s any pricing pressure as a result of the noise they re making or? <A John Shackleton Open Text Corp.>: Certainly so far we haven t seen pricing pressure. <Q Tom Liston Versant Partners, Inc.>: Okay. And just moving over to your services line, certainly it s pretty robust and seemingly ahead of most expectations and there certainly margins improved as I think you had some previous commitments with some of the acquisitions that were lower margin. Can you just walk through what was going on in the services side and obviously you re seeing an improvement there? <A John Shackleton Open Text Corp.>: Right. So you re exactly right. As we do these acquisitions there usually is some clean up. We were also saying we do want to get it over the next two or three quarters back to our normal area. We have made progress this quarter, and in professional services in general we re seeing a pretty healthy pipeline FACTSET Copyright CallStreet 10

11 <Q Tom Liston Versant Partners, Inc.>: Okay. <A John Shackleton Open Text Corp.>: In fact, in summary as we re we kind of have a capacity. We re having to look at beefing up our organization in that area as well as with our partners. <Q Tom Liston Versant Partners, Inc.>: Okay. And finally, Paul, just on deferred revenue year-over-year and there s certainly a change sequentially, can you walk through that? It obviously looks the weakest, but I suspect a lot of it s the Global 360 and timing around collections. Can you walk through that and then just remind us of your renewal rate in the quarter? <A Paul McFeeters Open Text Corp.>: Yes. So deferred revenue balances, typically they do decrease through the quarter and their pickup is at the end of Q3. So that s because we have a high percentage of renewals occurring at the end of the calendar year, which creates a higher deferral. So it s kind of normal if you track on a sequential quarterly basis for it to come down and of course there s a bit of an addition nicely this quarter with Global 360. So it s in line and in terms of renewal rate, we re staying still tracking at the low 90s, around 92%. <Q Tom Liston Versant Partners, Inc.>: And so Global 360 would be a similar collection period? <A Paul McFeeters Open Text Corp.>: Yeah, we ll be, we d have the same kind of... <Q Tom Liston Versant Partners, Inc.>: Seasonality, the season, okay. <A Paul McFeeters Open Text Corp.>: Seasonality, right. <A John Shackleton Open Text Corp.>: Yes. <Q Tom Liston Versant Partners, Inc.>: Very good, thank you very much. I ll pass the line. Operator: Our next question comes from the line of Kris Thompson from National Bank Financial. Please go ahead. <Q Kris Thompson National Bank Financial Brokers>: Great, thanks, afternoon guys. Just in your guidance, John or Paul, can you talk about the revenue you expect from the big deals? Do you expect that to go up or down sequentially? <A Paul McFeeters Open Text Corp.>: Kris, you mean the number of large transactions Kris? Is that the question? <Q Kris Thompson National Bank Financial Brokers>: No, I mean the total revenue from large transaction, do you think that s going to go up or down sequentially? <A Paul McFeeters Open Text Corp.>: That s very hard to give you. Again on the nonguidance basis, it would be hard to give you much color on that. As John has said in the past that we have in many times trying to parse out a transaction over time and sometimes you saw this quarters if you still come through in the seven figure deal and yes, a number over the 500,000. So I would say that though our distribution revenue from large or small deals wouldn t materially change. <A John Shackleton Open Text Corp.>: I d say in other words, Kris, if I look at over the next two or three quarters, I wouldn t see it materially change. It might as we get start looking at next year, but we know we obviously take a look at it then, but I think certainly this year I don t see it FACTSET Copyright CallStreet 11

12 <Q Kris Thompson National Bank Financial Brokers>: Okay. I mean what I m trying to get out here is I m just wondering if some companies you re dealing with are flushing out their calendar year-end budgets... <A John Shackleton Open Text Corp.>: Right. <Q Kris Thompson National Bank Financial Brokers>:...a bit early this year because they might get them cut right off next year if the economy still looks crummy. <A John Shackleton Open Text Corp.>: Good point. We did see little bit of budget flush, not many and not necessarily tied to big deals, just in general. But a little bit more than usual but not it wasn t really tied to big deals. <Q Kris Thompson National Bank Financial Brokers>: Okay. <A John Shackleton Open Text Corp.>: But you re right. I think people, IT organizations may be doing a little bit of that. <Q Kris Thompson National Bank Financial Brokers>: Okay, fair enough. <A John Shackleton Open Text Corp.>: Okay. <Q Kris Thompson National Bank Financial Brokers>: Just on the market here with HP finally closing this Autonomy deal. I m just wondering if you re getting inbound calls from prospective customers wondering if there s going to be some distraction there? If there s an opportunity for you guys with that whole integration going on? <A John Shackleton Open Text Corp.>: So before the acquisition we didn t see them that much anyway, maybe more in the web content side with Interwoven but we certainly didn t see them in the ECM space. But our assumption is there will be disruptions particularly with what s gone on, and we would see some opportunities there, particularly in the web content management space. <Q Kris Thompson National Bank Financial Brokers>: Okay. Just a couple updates here on the CapEx. I think you guys are almost through your CapEx for the Waterloo facility. What did you spend in the quarter? How much is left if you don t mind? <A Paul McFeeters Open Text Corp.>: I think we spent about 6, 7. We re finished now, Kris, so there ll be no more CapEx for the Waterloo building going forward. <Q Kris Thompson National Bank Financial Brokers>: Okay, great. And on the credit facility I missed that. You said LIBOR plus I guess you re on a scale up to 275 basis points? <A Paul McFeeters Open Text Corp.>: Yeah, between 225 and 275 is where the pricing will come in. <Q Kris Thompson National Bank Financial Brokers>: And do you I think last call you said you expected to be around 4.5 with you interest rate swap. Is that kind of the target? <A Paul McFeeters Open Text Corp.>: The slight difference would be that the previous discussion we have we assumed we re going to go term loan B which is a seven-year transaction in which we would immediately put some fixing in place. This term loan A is a five-year transaction with some amortization. So we might not fix it right away. So I would lower the all-in rate from what we said before for the term loan A FACTSET Copyright CallStreet 12

13 <Q Kris Thompson National Bank Financial Brokers>: Okay, that s good. And just last, the average deal size, is it still around 300? <A John Shackleton Open Text Corp.>: That s correct yes. <Q Kris Thompson National Bank Financial Brokers>: Okay. Thanks again. <A John Shackleton Open Text Corp.>: Yeah. Operator: Our next question comes from line of Sera Kim with GMP securities. Please go ahead. <Q Sera Kim GMP Securities LP>: From emerging markets what were the drivers of growth like in terms of product offerings? Was it more on the compliance side or the other areas that you re... <A John Shackleton Open Text Corp.>: In the emerging markets it was more on the productivity side, particularly around things like digital asset management, web content management, et cetera. <Q Sera Kim GMP Securities LP>: Okay and what percentage of license sales is from the emerging markets? I m just wondering how that compares to a year ago? <A John Shackleton Open Text Corp.>: The emerging markets has pretty much grown about 300%, but it s still within that maybe 4% or 5% total. <Q Sera Kim GMP Securities LP>: Okay. So the increase in like the 44% that percentage of revenues from partners, was the increase more related to partnership relationship with Microsoft and others relative to the emerging markets? <A John Shackleton Open Text Corp.>: No, not no. It s pretty much across the board. I think it was probably more to do with systems integrators in this particular quarter. <Q Sera Kim GMP Securities LP>: Okay. And you earlier mentioned that there were some areas where you re already at capacity is that on the professional services and training area or are there other areas where you re feeling pinched? <A John Shackleton Open Text Corp.>: That s right. It s professional services. <Q Sera Kim GMP Securities LP>: Okay. And I guess and just more of a clarification, it sounds like you have some good visibility and there s some larger deals that are in the pipeline. Is this a business that s already been booked so it s and already like firm commitments so it s just a matter of deploying and recognizing the revenue at that point? Or is there still a potential that things can get delayed? <A John Shackleton Open Text Corp.>: Some of it is, maybe a third of it where it s already done and it s just a sequencing. Probably two-thirds would be even though they re existing customers, new projects that they are initiating obviously could be delayed, but as I said we ve got a healthy pipeline so that we re trying to build in the potential for delays anyway. <Q Sera Kim GMP Securities LP>: Okay. And in terms of your pipeline, are you still continuing to see growth in the productivity related and then your social media and mobility type applications or has the demand just gone back to more compliance-related stuff? <A John Shackleton Open Text Corp.>: The mobility end is really new anyway, and we re seeing quite a bit of pick up in that, but it s still fairly small from a revenue standpoint, but we re FACTSET Copyright CallStreet 13

14 seeing lots of interest in that area. So the actual bulk of the revenues are still in the compliance/productivity of our core products. <Q Sera Kim GMP Securities LP>: And can you give a breakdown compliance versus productivity? <A John Shackleton Open Text Corp.>: It would be a guess but I would say in that 55% to 60% range would be compliance, the rest would be productivity. <Q Sera Kim GMP Securities LP>: Great, thanks a lot. <A John Shackleton Open Text Corp.>: Thanks, Sera Operator: Our next question comes from the line of Pardeep Sangha with PI Financial. Please go ahead. <Q Pardeep Sangha PI Financial Corp.>: Thank you. Just with regards to if I could just get some more color on the competitive landscape? You did make a few comments already about not seeing much of the economy, but what also are you seeing in the market right now and who are you seeing and when you re doing for RFPs and things like that? <A John Shackleton Open Text Corp.>: Right. So and obviously it varies a little bit based on whether it s web content management, ECM but also little bit geographically where we might see some small locals compete but it s still the traditional EMC Documentum filed at IBM would be the, I would say the majority of the key competitors. And then whether if it were something like web content management you might see the old Interwoven folks. <Q Pardeep Sangha PI Financial Corp.>: Okay, and does this, sort of another question just with regards to cloud-based solutions, and can you add a bit of color there in terms of what you re seeing in the industry and sort of customer demand for that? Or is it really quite a bit of your demand seems to be on premise offer still? Are you seeing a shift there at all? <A John Shackleton Open Text Corp.>: We re seeing a shift in interest that there s a lot more interest in our cloud offering. From our customers we re seeing a lot of hybrid where they re looking at both public cloud tied to private cloud, tied to in-house products that they ve already got. So often an example I use is Hoffmann-La Roche where in-house their R&D, drugs R&D, is all done in the private cloud in-house and then their clinical trials are tied to a public service, and the two are obviously connected together. And we re seeing a lot of people interested in that. The governments that are interested in clouds it s always usually security is a key issue. So multi-tenancy they keep that they re kind of steering away from. <Q Pardeep Sangha PI Financial Corp.>: Okay, that s it for me. Thanks. <A John Shackleton Open Text Corp.>: Okay. Operator: Our next question comes from the line of Eyal Ofir with Canaccord Genuity. Please go ahead. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay, thanks. Just want to touch base again on the emerging markets, you talked about you have a total of 425 sale execs across the company. How many of those are actually in Latin America and in emerging markets? <A John Shackleton Open Text Corp.>: Sorry, I missed the number that you were quoting? FACTSET Copyright CallStreet 14

15 <Q Eyal Ofir Canaccord Genuity Corp.>: Well, I just gave the total, but I m just wondering how many of your sales execs are sitting in Latin America and... <A John Shackleton Open Text Corp.>: Oh, sorry, I missed, sorry. I missed the sales execs. On the emerging markets, it s probably less than 10. <Q Eyal Ofir Canaccord Genuity Corp.>: Less than 10? Okay. <A John Shackleton Open Text Corp.>: Yes. We do, in certain areas like Russia and China, we do work with our partners, and so it would be a partner or partner group who wouldn t be considered. So our people that are working with the partners would not be considered part of that 425 quota-carrying. In Latin America, which is the majority, that s where they are direct part of that 425 are. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. And how has that changed over the last year? Has that have you had less than a year ago or is about the same? <A John Shackleton Open Text Corp.>: Well, it s about the same as a year ago. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. In your pipeline you talked about having some momentum in emerging markets. Is there more than 4% to 5% of your pipeline from emerging markets? <A John Shackleton Open Text Corp.>: It s about 4% or 5%. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay, so it s the same level as the current revenue. <A John Shackleton Open Text Corp.>: Yeah, maybe growing a little bit. Maybe if we looked a year back it was 6%, 7% and now we re looking at 8% and then I would see that growing. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. So it s about 8%? <A John Shackleton Open Text Corp.>: Yes, but that s including what we complete we had the emerging as part of the Asia-Pac as well. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. <A John Shackleton Open Text Corp.>: So it s in that other if you will. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. So basically all emerging markets lumped into so that s still the trend. That s still positive showing, so you have 8% of your pipeline... <A John Shackleton Open Text Corp.>: Yes. <Q Eyal Ofir Canaccord Genuity Corp.>:...as emerging and about 4% to 5% of your revenues from emerging. <A John Shackleton Open Text Corp.>: Correct. Correct. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. And just touching back on BPM, obviously you hired a fairly well [indiscernible] (42:39) exec to mange that business for you. What was the thought process to go external of Metastorm and Global? And can you just give us some, I guess, feedback of what the customers have said so far with the decision and how that s what the reaction has been internally? FACTSET Copyright CallStreet 15

16 <A John Shackleton Open Text Corp.>: The outside executive that we hired was actually his background was from one of the original founders of what kind of morphed into Global 360. So he s very well know in the industry, known and liked with the Global 360 folks, but also with the Metastorm which was a smaller group. I think that group given both that dot net base, the relationship seems to be going very well both from at an engineering level as well as the marketing and sales level. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay, and he s only been there a little while, so has he given you any feedback yet, in terms of what the team looks like and the capabilities that he s got. Is he comfortable with it as it is or is he going to need to make some changes not only I guess internally but also since you re looking externally to maybe acquire additional capabilities or... <A John Shackleton Open Text Corp.>: Yes. So on the development side of things, the engineering side, very strong teams from both sides. What we ve seen from the sales teams, we re also seeing good productivity, good they complement each other in many ways. So we re not seeing a lot of overlap where we may need to take people out. And at this point we don t see a need for a lot of anymore maybe one or two that might be, but at this point not a lot of external people that we need to bring in. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. And in terms of the technical capabilities, you ve got everything he needs in-house? He s not [indiscernible] (44:30) from other acquisitions? <A John Shackleton Open Text Corp.>: And as I mentioned, he knows these people from previous life as well. <Q Eyal Ofir Canaccord Genuity Corp.>: Okay. Okay, that s good. Thanks. I ll pass the line. <A John Shackleton Open Text Corp.>: All right. Operator: Our next question comes from the line of Blair Abernethy with Stifel Nicolaus and Company. Please go ahead. <Q Blair Abernethy Stifel Nicolaus Canada, Inc.>: Thanks. John, I wonder if you could just provide us with some more color on what you re seeing with your social media products? And in particular, are you selling this more into your existing base or are you is this actually helping to draw in new customers to the business. Just what we ve obviously seen a couple of headlines about this being picked up in government areas, but I m looking for a little more broad-based color on it. <A John Shackleton Open Text Corp.>: So there s a couple of things, Blair, one is that we so obviously we ve been some of this is fairly new, beta testing as well as getting customer feedback from our existing base. We see it being used particularly in things like the G20 where it s almost like event management where an event is coming together. There s the coordination of that event. There s the running of that event, and then the follow-on from that event. And we re seeing a lot of interest in that. So not only from the G20 but as we said the Commonwealth are doing a similar kind of thing where we re actually seeing companies that are reusing it for things like their sales event or their user conference event are using these kind of mobile apps to communicate with their customer base, so that s one piece. The second piece we are seeing is also there is interest from telcos. There s interest from device manufacturers that are also interested in providing applications to their customer base. So we almost see an OEM-type environment for this kind of product as well. <Q Blair Abernethy Stifel Nicolaus Canada, Inc.>: Okay FACTSET Copyright CallStreet 16