Welcome to the Open Text Corporation Fourth Quarter Fiscal 2009 Financial Results Conference Call. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on August 20, 2009 at 5:00 PM Eastern Time. I will now turn the conference over to Mr. Greg Secord, Vice President, Investor Relations.

Thank you. Hello everyone, thanks for joining us. With me today are Paul McFeeters, our Chief Financial Officer, and John Shackleton, our President and Chief Executive Officer. Before we begin I would like to read the disclaimer. During the course of this conference call, we may make projections or other forward-looking statements relating to the future performance of Open Text or its subsidiaries. These oral statements may contain forward-looking information, and actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion, while making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors or assumptions that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection as reflected in the forward-looking information, are contained in the Open Text Form 10-K for the fiscal year ended June 30, 2008 and in our press release that was issued earlier today. With that, I'd like to turn the call over to Paul McFeeters.

Thank you Greg. Turning to the financial results, I'll highlight our fourth quarter and then the fiscal year 2009. Total revenue for the quarter was $203 million, up 2% compared to $200 million for the same period last year. License revenue for the quarter was $63 million, down 8% compared to $68 million reported last year. Maintenance revenue for the quarter was $104 million, up 10% compared to $95 million last year. Services and other revenue in the quarter was $36 million, down 3% compared to $37 million in the same period last year. We report fourth quarter adjusted net income of $39 million or $0.73 per share on a diluted basis, up 18% compared to $33 million or $0.63 per share for the same period a year ago. Gross margin for the fourth quarter before amortization of acquired technology was 74.8%, compared to 73.9% in the fourth quarter last year. The increase was primarily due to higher margin for customer support. The pretax adjusted operating margin before interest expense was 26.5% in the fourth quarter, compared to 24.3% the same quarter last year. Adjusted tax rate for the quarter is 28%. Net income for the fourth quarter, in accordance with GAAP was $19 million or $0.36 per share on a diluted basis, down 29% compared to $27 million or $0.51 per share on a diluted basis for the same period a year ago. There are approximately 54 million shares outstanding on a fully diluted basis for the quarter. Operating cash flow in the quarter was $39 million, compared to $45 million in the same period last year. Net cash flow from operations for the fiscal year was $176 million, compared to cash flow from operations of $166 million in fiscal 2008. Note that in the current year, we had…

Hello, everyone. Thank you for joining us today. Let me start by saying I am disappointed that we were slightly off on our Q4 revenue targets, mainly due to the WCM delays where customers were waiting to see our new WCM strategy with the announcement of the Vignette acquisition. Over the past month, we've now been communicating our strategy to customers, and I believe this will help us going forward. While I am disappointed with the revenue, I am pleased that we grew our adjusted earnings by 24% on an annual basis, as Paul mentioned. As for a revenue breakdown, North America was responsible for 47% of revenue, Europe 48%, with the remaining 5% coming from Asia-Pac. Europe was on target and Asia-Pac exceeded its target, while the shortfall occurred in North America. Sales continue to be driven by demand for compliance and ERP based solutions. And we are particularly happy with the success around our SAP product sales. On an annual basis, we saw 50% of our revenue from North America, 45% from Europe, and 5% from Asia-Pac. In the quarter, we generated $63 million in license revenue, 32% coming from new customers and 68% coming from our installed base. In Q4, we saw license revenue broken down by vertical, as 29% from high-tech manufacturing, 18% from government, 15% from energy, 11% from pharma and life sciences, and 9% from financial services. On an annual basis, we saw 28% from high-tech manufacturing, 15% from government, 11% from energy, 10% from financial services, and 7% from pharma and life sciences. Taking a closer look at the transactions in the quarter, we had 15 transactions over $500,000, an additional three transactions over $1 million. This compared to six transactions over $1 million in our last year. We had notable wins in…

(Operator Instructions) Our first question comes from Scott Penner with TD Newcrest..

First, a couple of clarifications; Paul, in your comments you said [to read] into that then that Vignette is expected to be slightly dilutive in the first quarter?

That's correct, Scott

And the tax rate as well, we should be modeling 28% to 26% in the upcoming year. Is that right?

Correct.

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

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

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

I think Scott obviously SAP had a tough last quarter, but what we found was is that working with their sales people, both North America and Europe, we were able to go back into their existing base and sell the archiving products and the Vendor Invoice Management products to that customer base. So even though they were having a tough time, we had quite a bit of success selling our products.

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

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

Our next question comes from Tom Liston with Versant Partners.

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

That's right, Tom.

And the same thing with the model guidance, including an increased range, that's not for the year, that would be kind of an [ex] Q4 type number, would it be?

No, that's for the fiscal year.

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

That's correct.

John, sorry if you just answered this, but the Vignette numbers that you based the drop on is based on the run rate type numbers, and can you give us some color on how they did in the June quarter?

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

When you say, 20% to 30% drop in license is more like 30% to 40%, is that based on kind of March or trailing 12 month type numbers?

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

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

It’s a little bit of hesitation. I think we’ve seen as part of some of the delays, we have seen a number of our customers, tightening budget, delaying projects, etcetera. But they’re certainly not cancelling projects, they’re just delaying, so we don’t see this as a concerned at this time.

Our next question is from Richard Tse with National Bank Financial.

Hey John, with respect to the WCM business was that sort of the lion share of the short fall to your numbers in this quarter?

That’s right.

And, what would you expect in terms of the drag on the results in terms of recovering that revenue here? Is it like a one quarter thing, you’ve obviously been knocking to a lot of your account here that they’re going to pick up…

We think it will pick up, Richard. In many cases, they’ve seen the road map that we’ve shown them. We see some interesting synergies between the two products and so from the customers that we talked to, it's been very positive.

And just a sort of a broad question, you’ve had a few acquisitions this year, what do you see sort of as a road map for (inaudible) as whole going forward. Are you going to sort of try to move everyone on a single platform down the road. Can you give us a color on that?

On the Web Content Management side what we are basically seeing is that the Vignette has the e-commerce very strong robust enterprise wide product. Where they had weaknesses, and one of the key concerns for customers was very difficult to customize, not user friendly. Whereas the web content product that we had, mainly the RedDot product easy user interface, easy to use, easy to customize. So as we see putting the two together, we see some significant synergies in that area. We also see from the Vignette Portal product that that's going to help us in our social media product. So we are seeing some very interesting synergies that we hadn’t been thinking about, that we can use that product with our social medial Livelink product.

Okay. And just a last one. Beyond the Web Content Management, the other businesses have they shown any sign of weakness for this backup here as this?

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

Our next question comes from Paul Steep with Scotia Capital.

John, maybe we'll just actually carryon on the product side. What sort of the timing for the integrated platform, and I guess, would the plan be to migrate that Vignette product over to RedDot that [number] there. I think they are on a different architectures as I would recall?

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

Okay. And then just three quick ones for, Paul, just throw them all in one batch here. I guess the Vignette tax yield that was pretty substantial, if you could comment on that. Then on FX, we have license [revenue] of 1.1 positive year-on-year. Is that sort of where it tracks in? And then finally on your margin bump, is that one-time only the extra bump in the model of 2% in 2010 or is that sort of ongoing 2010 and beyond?

I'll start in reverse order. The margin is expected to be ongoing. We would hope not to increase it and then go in reverse, so we are adjusting our model for FY10 and future. As in the past, I apologize, we don't comment on FX on the line-to-line basis but on the bottom-line as we did this time. We will have in the US some restructuring what you can bring forward in losses as a percentage of your acquisition costs. It's still significant enough and we'll be able to utilize that portion against our cash taxes always payable in our other U.S. operations.

How's that going to have to work out, Paul? Is it spread out over many years or is it…?

Yes, it is spread over many years, yes.

Our next question comes from Brian Freed from Morgan Keegan.

I have two quick questions. First, if you kind if look at your core business and backup maybe $20 million to $25 million from Captaris, It looks like your organic revenue was down maybe 10% or so year-over-year. The economy is stabilizing and now that you've got the Vignette acquisition closed, do you think that kind of bottoms and improves going forward?

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

Would you say the delta between what you did this quarter and flat and single is really just the freeze in the WCM side of your business?

From what we are seeing, we think so.

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

I think we've mentioned before, it's a 10-year contract and the opportunity is the largest in our history. Particularly in today's environment, we see significant potential for growth with that contract where the needs around archiving and records management etcetera is pretty high, so we see that as a tremendous opportunity for us going forward.

Have we seen any impact from that yet or is it all…?

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

Our next question comes from Barbara Coffey with Kaufman.

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

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

You said there were six deals greater than $1 million this quarter last year? How many were sort of greater than $500,000?

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

Our next question comes from Michael Abramsky with RBC Capital Markets.

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

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

So there could be an element that even if you early on do qualify the roadmap issue, where there still could be sluggishness. I guess the question is, when you're comfortable with the kind of single digits, what is the risk that if some of those Open Text customers and prospects continue to kind of holds off on the WCM side?

Right. What I would say Mike is that the synergies that we see as we have talked to Vignette customers and they see the whole portfolio, the products that they could use, as well as the roadmap that we have explained to them, people were very positive. So let me say it another way. Even if WCM stayed on its same course or at least bottomed out. We still feel comfortable growing the numbers.

Would you sort of characterize the extended sale cycles and decision processes as longer this quarter than previous. Like just kind of characterize the trend of last two or three quarters.

I would almost say, Mike, if you look just typically a six to nine month cycle, its now more like a nine to 12 months.

I guess, the question is, are you seeing at extend, extend, extend, and how long do you think that trend will it continue to get longer continue?

It's really hard to say. From what we are hearing today, many people are saying we are going to hold off until January to stop this project.

In that environment, what is the basis for the single-digit growth? What are you assuming that that will come from and what kind of assumptions are you making on further delays of sale cycles?

It’s a very good question, Mike, and what we are seeing is that, any areas where you can show rapid return on investments. So particularly around areas like our vendor and voice management, or our expense management, some of the things that we see interfacing to the ERP systems. They can see some significant quick ROIs. We are seeing interest in those areas.

Because those are areas that reduce headcount?

Reduced cost but also reduce cost in a very short timeframe.

So the ERP interfacing is the kind from where they would be able to eliminate some headcount?

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

Okay. Sound like you are going to be doing a fairly material restructuring of sales in Europe?

Actually on a worldwide basis where we are putting the general managers in place that we’ll have not only sales but professional services and all the other field marketing etcetera onto them, where they will managing their own P&Ls.

So what is the potential disruption risk of that John to things like account transition and territory reallocation?

On the territory allocation, and in fact it should help because these people have the resources in control at their finger tips closer to the customer. We’ve done it on limited basis for the past year and we’ve seen that it has been an improvement in the ease both the internal but also from our customer perspective. We said we’ve been doing this gradually over the past year. We have the managers in place. These are very seasoned managers that have managed P&Ls and managed large teams of people. So we feel pretty confident that this will work well, as well as give us the ability to grow as we go forward.

Our next question comes from Dushan Batrovic with Canaccord Capital.

Sorry I know this was asked, but I’m still a little bit confused by the response, the 30% to 40% discount that we’d applied to the sales that sound Vignette’s last reported quarter, the March quarter?

Right.

Next, the geographic situation, it seems like its changed a little bit since last quarter. I think you were talking about the Americas picking up a bit and Europe still lagging, and it sounds like this time around that slipped and.

Exactly, in fact it was Germany that was hurt in last quarter and Europe and North America we saw picking up. What we did see is more product related. In the US we did see a lot of activity, lot of pipeline, it was mainly around the WCM product areas.

So, it's not necessarily a comment on the macro.

Geographic, right. From a pipeline standpoint, we have seen good activity in North America.

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

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

Okay. And last one from me is on the Social Media side. It sounds like a really interesting long-term opportunity. Maybe if you just tell us a little bit around what types of timelines we should be looking at for this new product to really start to make a dent in the financials?

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

Our next question comes from Blair Abernethy from Thomas Weisel Partners.

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

So the license margin, I would guide you more to the annual margin. Each quarter has a little different mix. What's really in that cost Blair is the third-party royalties, so it fluctuates from quarter-to-quarter somewhat based on the mix of what we sell and the royalties that drags with it. So I'd look more to the annual margin going forward. Similarly on the service side, I think that we are settling in on a combined margin there, just I would say between 18 and 20, and I wouldn't draw that into that and I think that's how we'd think about it going forward.

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

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

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

Just on the large deals, one of you just give us more color on the three large transaction sort of what sort of products or what areas drove those deals? John, can you hear me, okay.

Yes, I can.

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

So it's pretty much of a mix between areas around interfaces to their ERP systems, so they are using the content management with ERP, but also customers using Livelink with their Web Content Management as we've explained at the extranet. I would say a mix 50-50 between compliance based working typically with ERP systems and then the others around managing that content, particularly around managing their email archiving and that kind of thing.

What do you see in the eDiscovery space?

When I say compliance that's really is tied to eDiscovery, so quite a bit in that area.

Okay, you are putting that in there. One other question if I can, just on the legacy Hummingbird Connectivity business which in the past was fairly driven by employment levels, what have you seen in that business in 2009?

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

Our next question comes from Scott Penner with TD Newcrest.

Just a couple of things, one is John or Paul and you integrate the Vignette acquisition, you mentioned the PS margin has been 18 to 20, is there going to be a shocked downward initially?

No, no. I don't anything happened. Might be during the first quarter, but I don't think anything. We are not expecting anything dramatic.

Okay. And the other thing is the Hummingbird installed base that was always presumably fairly hungry for new technology when you bought the company. I mean where is that in the upgraded cycle? Is that part of the ongoing model right now or are there still a substantial opportunity to sell those people new technology?

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

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

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

Our next question comes from Ralph Garcea with Haywood Securities.

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

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

And Ontario was 10 years, federal government was seven I think or…

That's right.

And is there other possibilities within some of the larger provinces?

Yes, absolutely. As well as even potential to grow within those, both the Ontario and federal, as well as some other things that we’re doing with the Canadian Governments would be applicable to other governments as well.

You talked a lot about the SAP integration and the success there. What do you see in the future now with Oracle using 11g network coming out and opportunities there, now that there are so much [like] product for you.

We’ve been very pleased with the growth of our relationship with Microsoft, we’ve been doing a lot of work this past year with them, and we’re seeing that coming along nicely. We do see indications with Oracle that they are very interested in some of the thing that we’re doing with JD Edwards and PeopleSoft etcetera. So we are beginning to see more, more work with this as well.

Would the SharePoint opportunity and SAP sort of be a similar size rate now or…

SAP is over largest but that the Microsoft SharePoint certainly has grown.

Our next question come from Gabriel Leung with Paradigm Capital.

John just going to back to the Social Media platform for a second. Can you talk about how bookings have trended for that product since you released in June, and whether or not some of your initial [beta] sites for the platform has converted into or are planning to convert into full deployments?

To the last question, yes some are doing that. On the revenues at this point, some of them have been existing customers, that's really part of their maintains upgrade, that we’ve been working with. And again what we’ll be seeing is mainly trying to sell this in to our existing base.

Just going back to your comments around further ECM being flat to single digit growth. Is your expectation for Open Text based on an organic basis to continue to exceed sort of industry averages?

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

One question for you, Paul. Just on the G&A, we know that it pick up a little bit sequentially. Was that just sort of some year-end cost? So we could expect that on a standalone basis, anyway to sort of drop back down again Q1.

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

Our next question is a follow-up question with Richard Tse with National Bank Financial.

You didn't talk about the maintenance renewal rates here this past quarter, how are those stand right now?

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

You've been able to get price increases on a maintenance base or as it essentially flat to last year?

A little increase, but not as much as what we'd usually do, so I would say pretty flat.

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

Okay. Thank you everyone for your questions and just to wrap on the quarter's highlights, Q4 revenue was disappointing, but we had a decent year. We met all our profit goals in a very difficult environment. I am optimistic on our outlook for fiscal 2010. The acquisition of Vignette strengthens our ECM leadership position and the integration is on plan. We'd like to thank our employees and customers and partners for the tremendous support over this past year and going forward, we expect to see single-digit growth for revenues, double-digit growth for adjusted earnings. So this concludes our call for today. Thank you everyone for participating and for your questions.

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