Open Text Corporation (OTEX) Q1 2012 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Open Text Corporation First Quarter Fiscal Year 2012 Financial Results Conference Call. [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.

Thank you for joining us. Please note that during the course of this conference call, we may make projections or other forward-looking statements relating to the future performance of Open Text or its subsidiaries. These oral statements may contain forward-looking information, and actual results could differ materially from a conclusion forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or while making a forecast or 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 the 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 Form 10-K and Form 10-Qs of Open Text, as well as in our press release that was issued earlier today. Before we begin, I'd like to announce that Open Text will be hosting an Analyst Day at our Content World Conference in Orlando, Florida on Wednesday, November 16. 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 of 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.

Thank you, Greg. Turning to the financial results, I will highlight our first quarter fiscal year 2012. 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 was $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 the Metastorm and Global 360. Our pretax adjusted operating margin before interest expense without 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 were $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 are 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 versus 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, deferred 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 2011. In July 2011, we announced our acquisition of Global 360. The 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. There's no change to our pretax adjusted operating remodel 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 Open Text 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're going to mark up by way of term loan A and expect the pricing to be within in the range of LIBOR plus 2 1/4% to 2 3/4%. Of the proceeds, approximately 1/2 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

Thank you, Paul, and good afternoon, everyone. I'm pleased with our performance for the quarter. With over 52% increase in license revenue year-over-year and a 17% increase in adjusted earnings per share, we delivered strong value to our shareholders. By concentrating on existing installed 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 2012. 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 pick up 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 can 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 at 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 installed base. Taking a closer look at transactions in the quarter. We had 15 transactions over $500,000, an additional 7,000 -- sorry, an additional 7 transactions over $1 million. This compares to 3 transactions over $500,000 and 2 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 Open Text. They have 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 Open Text Extended ECM for SAP Solutions and Employee File Management for SAP Solutions. These solutions will help the group make processes simpler and more integrated. Kloeckner, European's largest independent distributor of steel, purchased several Open Text solutions, including Email Management from Microsoft Exchange, Application Governance & Archiving for Microsoft SharePoint, Open Text Extended ECM for SAP Solutions and Vendor Invoice Management. The main objective for the purchase were to increase efficiency in the 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 used as Open Text Social Workplace. Citizen1 was established in collaboration with the South African academy -- Academic CIO Forum and Center for Chief Operating Officers Research in Africa. In addition, in conjunction with the 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 G-20 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 announcement related to Microsoft this quarter. We announced the availability of a new version of Open Text Email for Microsoft Exchange, featuring proved support for large or geographically dispersed environments. This enhance 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 2010. 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 Open Text 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 a 5% to 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 2013. 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's solutions include social and mobile learning management. Turning to our outlook for FY '12. The industry analysts continue 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.

[Operator Instructions] Our first question comes from the line of Scott Penner with TD Securities.

The contribution for 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 a little over 10%, whether that uptick is related to more so for Microsoft or Oracle?

Quite a bit for Microsoft, Scott, as well as also we did quite a bit with some of the systems through various like Accenture and Deloitte.

And that uptick, is that related to -- primarily to the to Global 360 acquisition?

No, it's pretty much across the board, Scott.

Okay. And then the similar question on the new-named customers. 47% is a higher number than we've seen in some while. Just any color as to, I guess, what these new customers are interested in?

So some of that, Scott, was from Global 360 and Metastorm, but also from our partners like SAP and Microsoft. And again, across the board, some of it was around compliance, but others would be more on the productivity, efficiency side of things. And there's pretty good balance between the 2.

Paul, do you have the contributions from Metastorm and Global 360 handy there?

Yes. So Scott, we no longer report Metastorm, so we won't be announcing it here. The Global 360 contribution had a $18.2 million in revenue. And before special charges, so on an adjusted EPS, that's at $0.02. So it was accretive already this quarter.

Okay, great. And then, I was also going to ask about the cash impact of both the deferred revenue write-down and the cash impact of charges in the quarter.

Yes, the revenue write-down isn't a cash impact as you know, it's an accounting adjustment of $2 million. The cash impact for restructuring this quarter was about $6 million -- about $6.5 million. And the -- in Q2, we would expect an additional accounting charge of about $15 million. And the cash that would flow out from that, for Q2 about $8 million and about $5 million in each of the next 2 quarters in this fiscal year for cash.

And that charge of $15 million, will that pretty much clear out what you had expected?

Yes. That will, yes.

Okay. And just lastly, John, any comments around seasonality for Q2 over Q1, which has typically been a pretty big quarter. What can you say about it?

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 we had before. So as opposed to last year where it was a much bigger swing, I think this is -- we're now back to a more traditional model of where we 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.

Sorry, John. We're a -- what we think there's a one quarter.

Yes, that's all right.

Sorry, Scott. We out of sequence -- the 25% to 30% is for next quarter. So the typical seasonality, 25% to 30% is what we would continue to think about.

Right. So 5% to 10% down in Q3. And the, sorry, John, Q4 would be?

Up.

Up 10% to 15%. Sorry on that one. But net-net, year-over-year, it would feel pretty comfortable.

Our next question comes from the line of Thanos Moschopoulos from BMO Capital Markets.

Just on the last points regarding the license seasonality for next quarter, does that factor in the fact that Global 360 should be down?

Yes, I mean, Global 360 down. This is Paul. It's 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 net of being a 10% reduction license revenue in the 4 to 12 months after acquisition, and we're still in that same view.

Okay. And I realize it's probably very small, but what was the contribution of Operitel in the quarter?

Definitely small, less than $1 million.

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?

Yes, 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 is also doing okay. So given our mix in Europe, it's a good -- the strong German and Nordic upsets the kind of weakness in the U.K. government.

Okay. And sort of unrelated question, are you seeing any weakness at all in the public sector or Financial Services segments?

In Europe or...

I don't -- no, just globally. I mean, it looks like public sector did well in the quarter. Financial services seems like they may have been a bit down as a percentage. Going forward, how is the pipeline looking there?

Right. 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 been strong. Obviously it's there at the year-end budgeting. On the Financial Services, was down a little bit, but we're still seeing good pipeline in that space on a global basis.

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 2 or 3 quarters to fully integrate. At which point license growth should resume? Is that still the expectation. Is integration there fully on track?

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 moving -- progressing very smoothly.

Our next question comes from the line of Mike Abramsky with RBC Capital Markets.

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? Are they multiyear different types of opportunities? Can you give us a little bit of color and that, please?

Okay, Mike. Yes, so one was a slip for the BPM side of the Q4 that I think we had mentioned last year from a European bank. That did come in. We are seeing, in general, some sizable deals on a global basis, and with them -- and not only license but Professional Services and training as well with that. And so I was very encouraged with the $500,000 to $1 million size. So 15, that's quite large. We haven't seen that many in quite a long time. And we are -- in the pipeline, it seems to be very similar. So we're -- again, we will try to keep these chunks. So they're not so big, but we are seeing more large deals in the pipeline.

And how do you feel about the revenue lumpiness risk and/or deal slippage risk given the environment?

Well, 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 2 quarters have been very accurate. So we'll continue to work on that. So on the economy, we haven't seen it yet. On the bigger deal, obviously, they have been taking longer, but we'd built that into the model, anyway.

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.

Well, we're being conservative, given the economic outlook. So I feel very comfortable in the pipeline. We've got a very healthy, slow growing pipeline. But given the situation out there, we're being cautious.

Okay. And when you still call for -- maybe this is my last question, when you still call for the margin impact coming off in synergies coming in on your acquisitions over the next 2 or 3 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 you have good visibility into that?

Yes, Mike. This is Paul. The assumptions are -- according to our own integration plan and synergies which, as you know, we have a reasonable experience there. So as John's said, we're driving our plans. Our confidence of getting into FY '13, getting these acquisitions on the operating model is still good.

And again, from the technical side, we haven't seen any issues. It's pretty much going as planned. Putting the 2 sales forces together and getting them focused on areas of where they got strength is going to plan. So -- and while we do this organization, it obviously is a disruption. But I think going forward, we have a pretty good marketing plan as we come into FY '13.

Our next question comes from the line of Richard Tse with Cormark Securities.

John, just following up on the integration question on 360 and Meta. Can you kind of give some specifics in terms of how you plan on sort of attacking the current installed base?

Yes, so if you remember, Richard, 360 -- Global 360 is more content-centric and has 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 2 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.

So will there be -- would your existing sales people be selling the entire, I guess, Open Text product line then? Or that's going to be a special group for these BPM products?

Today, it's a special group that sell the 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.

And then, if you look at the core base, like what do you figure the penetration rates for these type of applications? Is it next year?

What, to date?

Yes.

Almost, not yet. 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, very positive.

Okay. And then just one last question on this. The Oracle partnership, it looks like they've been sort of ramping up efforts in content management, again recently, like can you sort of give us a bit of an update on that partnership that you have with them and whether it's changing in any way?

Yes. We don't really see they've been ramping up on the content management. In fact, the Stellent product doesn't seem to be doing too much. On the Fusion side of things, the product that we've been working with them on is going well, as well as the applications of the 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.

Our next question comes from the line of Stephanie Price with CIBC World Markets.

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 be we be thinking there?

So obviously, Global and 360 put together are a sizable acquisition. But we do see, like Operitel, there are number of top accounts that we could see that would have minimal impacts on the core group, if you will. So I think you'll still see us doing some.

Okay. And in terms of geography, you talked a bit about Europe. Can you talk about where you're seeing the most momentum right now? And if you have any concerns in any particular region?

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. As we've seen the Canadian -- with the Canadian elections or the provincial elections, we're seeing a little bit slowdown there. But we'd expect to see that pick up as they're looking at the year-end budgeting.

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.

Yes. Strengths, we're seeing -- we're 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. Telcos, within that group.

Our next question comes from the line of Tom Liston with Versant Partners.

Just picking up on, I think, it was Richard's question on Oracle. Certainly, on Vendor Invoice Management and other areas that you do well. But they're definitely being aggressive in the web center offering what they have and specifically, going after Documentum. It doesn't seem nearly as broad a DBCM, but can you comment on how they're trying to web center? 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?

So obviously the key area that we work with them on is the area of tying their structured applications, things 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.

Right. Is it too early to see if there's any pricing pressure as a result of the noise they're making or...

Certainly so far, we haven't seen pricing pressure.

Okay. And just moving over to your services line, certainly it has pretty robust -- seemingly had the most expectations and then 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, are you seeing an improvement there?

Right. So you're exactly right. As we do these acquisitions, there usually is some cleanup. But we we're also saying we do want to get it over the next 2 or 3 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. In fact, in some areas we're kind out of capacity. We're having to look at beefing up our organization in that area, as well as with our partners.

Okay. And finally, Paul, just on deferred revenue year-over-year and it certainly changed sequentially, can you walk through that? It obviously looks weakish, but I suspect a lot of it is for Global 360 and timing around collections. Can you walk through that and then just remind us of your renewal rate in the quarter?

Yes. So deferred revenue balances, typically they do decrease through the quarter, and their pick up is at the end of Q3. So that's because we have a high percentage of renewals occurring at the end of a 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 naturally 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, on the 92%.

And so Global 360 would be a similar collection period?

Yes, it will be -- yes, it would have the same kind of...

Seasonality, okay.

Seasonality. Right.

Our next question comes from the line of Kris Thompson from National Bank Financial.

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?

I'm not -- Kris, you mean the number of large transactions? Kris, is that the question?

No, I mean the total revenue from large transactions, do you think that's going to go up or down sequentially?

Very hard to give you. Again, on a non-guidance basis, we've already given you much color on that. As John has said in the past that we have in many times trying to parse out the transaction over time. And sometimes, as you saw this quarter, there's a few that still come through in the end of the deal. Certainly a number of it of 500,000. So I would say that there are -- our distribution revenue from large and small deals wouldn't materially change.

Id say it another way, Kris. If I look out over the next 2 or 3 quarters, I wouldn't see it materially change. It might as we get or start looking at next year, but we'll obviously take a look at it then. But I think certainly this year, I don't see it.

Okay. I mean, what I'm trying to get at here is, I'm just wondering if some companies that you're dealing with are flushing out their calendar year-end budgets this early this year because they might get them cut right off next year of the economy still looks crummy.

Good point. We did see a little bit of budget flush. Well, 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. But you're right. I think people, IT organizations may be doing a little bit of that.

Okay, fair enough. And 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?

So before the acquisition date, 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 disruption particularly with what's going on. And we would see some opportunities there, particularly in the web content management space.

Okay, and just a couple updates here on the CapEx. I think you guys are almost through your CapEx for the Waterloo facility. What's did you spend in the quarter? How much was left, if you don't mind?

I think we spent about 6 or 7. We're finished now, Kris. So there'll be no more CapEx for the Waterloo building going forward.

Okay, great. And on that credit facility, I missed that. Is it LIBOR plus -- I guess, you're on a scale up to 275 basis points?

Yes, between 225 and 275 is where the pricing will come in.

And do you? I think last call you said you expected it to be around 4.5 with your interest rate swap. Is that kind of the target?

The slight difference would be that the previous discussion we had, we assumed we're going to on term loan B, which is a 7-year transaction in which we would immediately put some fixing in place. This term loan A is a 5-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.

Okay, that's good. And just last, the average deal size, is it still around 300?

That's correct, yes.

Our next question comes from the line of Sera Kim with GMP Securities.

From emerging markets, what were the drivers of growth, like in terms of product offerings? Was it more on the compliant side or the other areas of your...

In emerging markets, it was more on the productivity side, particularly around things like Digital Asset Management, web content management, et cetera.

Okay. And what percentage of license sales is from the emerging markets? I'm just wondering how that compares to a year ago?

The emerging markets has pretty much grown about 300%, but it's still within that maybe 4% or 5% total.

Okay. so the increase -- like the 44% -- the percentage revenues from partners, was the increase more related to partnership relationship with Microsoft than others relative to the emerging markets?

No, it's pretty much across the board. And it was probably more to do with systems integrators in this particular quarter.

Okay. And earlier, you mentioned that there were some areas where you're already at capacity. Is that on the Professional Services and training area? Or are there areas where you're feeling pinched?

That's right, it's Professional Services.

Okay. And I guess, just more for clarification. It sounds like you have some good visibility, and there's some larger deals that are in the pipeline. Is this business that's already been booked and already like firm commitment, so it's just a matter of deploying and recognizing the revenue at that point? Or is there still potential that things can get delayed?

Some of it is, maybe 1/3 of it where it's already done, and it's just a sequencing. Probably 2/3 would be -- even though there were existing customers, new projects that they're initiating obviously could be delayed. But as I said, we've got a healthy pipeline. So we're trying to build in the potential for delays anyway.

Okay. And in terms of your pipeline, are you still continuing to see growth in the productivity related and the newer social media mobility-type applications? Or has the demand gone back to more compliance-related stuff?

The mobility end is really new anyway, but we're seeing quite a bit of pickup in that, but it's still fairly small from a revenue standpoint. But we're seeing lots of interest in that area. So the actual -- the bulk of the revenues are still in the compliance/productivity of our core product.

And can you give a breakdown compliance versus productivity?

I would -- it would be a guess. But I would say in that 55% to 60% range would be compliance. The rest will be productivity.

Our next question comes from the line of Pardeep Sangha with PI Financial.

Just with regards to -- if I could just get more some color on the competitive landscape. You did make a few comments already about not seeing much of autonomy. But what also are you seeing in the market right now? And who you've been seeing, and what you're doing for RFPs and things like that.

Right. So and obviously it varies a little bit based on whether it's web content management or DCM, but also a little bit geographically where we might see some small locals compete. But it's still the traditional EMC, Documentum, FileNet, 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.

Okay. And then just sort of another question, just with regard cloud-based solutions. Can you add a bit more 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 offers still? Are you seeing a shift there at all?

We're seeing a shift in interest, but there's a lot more interest in our cloud offerings. 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 Hoffman La Roche where in-house their R&D, of 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 2 obviously are connected together. And we're seeing a lot of people interested in that. Governments that are interested in clouds, it's always usually security is the key issue. So multi-tenancy, they keep -- they're kind of steering away from.

Our next question comes from the line of Eyal Ofir with Canaccord Genuity.

I just want to touch base on the emerging markets. You talked about you have a total of 425 sales execs across the company. How many of those are actually not in America and in the emerging markets?

Sorry, I missed the number that you quoted.

Well I just gave the total, but I'm just trying -- I'm just wondering how many of your sales execs are sitting in...

Sorry, I missed the sales execs. On the emerging markets, it's probably less than 10.

Less than 10?

Yes, we do -- in certain areas like Russia or in China, we do work with our partners. And so it would be a partner group who wouldn't be considered -- so our people that are working the partners would not be considered part of that 425 part of game. In Latin America, which is the majority, that's where our direct part of that 425 are.

Okay. And how has that changed over the last year? Is that -- have you had less than a year ago or is it about the same?

Well, it's about the same as the year ago.

Okay. And in your pipeline, you talked about having some momentum in emerging markets. Is more than 4% to 5% of your pipeline from emerging markets?

It's about 4% or 5%.

Okay, so it's the same level of revenue.

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.

Okay, so it's about 8%.

But that's including what we can -- the emerging markets are part of the Asia Pac as well. So it's in that other, if you will.

Okay, so basically all emerging markets limited to -- so that, still the trends are still positive showing -- so 8% of your pipeline, that is emerging and about 4% to 5% of your revenues from emerging...

Correct. Correct.

Okay. And just touching back on BPM. Obviously you hired a fairly well-seasoned exec to manage that business for you. What was the thought process to grow 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 the reaction has been internally?

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 is very well-known in the industry, known and liked with Global 360 folks, but also with the Metastorm, which was a smaller group, I think that group, given both the .net base, the relationship seems to be going very well, both from an engineering level as well as a marketing and sales level.

Okay. And he's only been there a little while. So has he given you any feedback like in terms of what the team looks like and the capabilities that he's got. Is he comfortable with that as is? Or do you guys need to make some changes not only I guess internally but also as you're looking externally to maybe acquire additional capabilities?

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 need to take people out. And at this point, we don't see a need for a lot of it anymore, maybe 1 or 2, there might be. But at this point, not a lot of external people that we need to bring in.

Okay. And in terms of the technical capabilities, you got everything he needs in-house, you have another acquisition.

And as I mentioned, he knows these people from previous life as well.

Our next question comes from the line of Blair Abernethy with Stifel, Nicolaus and Company. Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: John, I wonder if you could just provide us just 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? And just 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.

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 G-20, where it's almost like event management where an event is coming together, 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 G-20, but as we said the Commonwealth are doing similar kind of thing. We're actually seeing companies that are using it for things like their sales event or their user conference events are using this kind of mobile apps to communicate with their customer base. So that's one piece. The second piece we're 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. Now these are obviously early days yet, but we do see this as an opportunity for us. Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Did social drive any of the Q1 deals over 500?

Can I get back to you? Nothing comes to mind, but it might have done. I know that there is social media in some of the bigger ones at our existing customer base, but did it drive it? I'm not -- I couldn't tell you. Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And Paul, just a quick one for you. Can you just clarify on the service revenue this quarter? Was there any -- I wasn't sure if I heard it right, was there any onetime revenue, onetime increase in their service revenue this quarter? And was there any hardware in the quarter?

A very small amount of hardware, to answer that one first -- about $1 million. But on the service side, no, not a onetime transaction, as John said. We're building pipeline, and we're pretty much at capacity. We have to do some subcontracting this quarter to meet the demand.

Yes, as well as we did have some clean up from the acquisitions. But on that non-acquisition stuff, the pipeline is really built solidly. Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Are you looking to add to your service base?

We probably will in some key areas, like some of the emerging markets they need more expertise in those areas, as well as certain areas in Europe, we need more capacity. And that's the kind of thing that's so product-related that it would be difficult for our partners like Deloitte and Logic or others to be able to provide us with.

Our next question comes from the line of Ralph Garcea with Northland Capital Partners.

Two quick ones, if I may. First, do you see Microsoft over time being a bigger contributor than SAP? Just given all the leverage they get on their products that selling your products alongside SharePoint, Exchange, et cetera?

It's a good question, Ralph. My initial reaction is, one is I'm very pleased with the Microsoft partnership in revenues that, that's generating. But we do see also SAP is doing very well and continuing to grow. So I'd have to think more whether I see one taking over the other. I think in some of these new things we talked about around mobility, et cetera, there might be areas more that we could do with Microsoft as well. My initial reaction would be, they're both doing well.

Okay. It's good problems to have. And then just lastly, I mean, when IBM took over FileNet, you saw some incremental benefit from that on the services side? Do you think you'll see that on Autonomy as guys -- service guys that were helping them see that HP has EDS, maybe cross the floor and join you guys?

I would doubt as much, Ralph, because as we said, Autonomy beyond their search engine which most -- we didn't really compete with them in that area. They only really had Interwoven. Their other stuff that they had was fairly small and insignificant. So other than Interwoven, I wouldn't see a lot of competitive uptake.

Our next question comes from the line of Michael Nemeroff with Morgan Keegan. Michael J. Anderson - Morgan Keegan & Company, Inc., Research Division: This is Mike Anderson for Michael today. Just a couple of quick questions for you. With respect to the number of deals that you were closing and more large deals, could you just give us an idea of what -- give us an idea what the ASP was in the quarter? I think last quarter you said it was $300,000.

It was about the same, maybe $10 more higher. Michael J. Anderson - Morgan Keegan & Company, Inc., Research Division: Okay, good. And with respect to the services and having to do some subcontracting. I didn't see in the release or maybe I missed it. You used to split out the margins for each of those lines. Can you just give us an idea of where those landed?

The services margin is about 18%, Mike. Michael J. Anderson - Morgan Keegan & Company, Inc., Research Division: Okay. And then one last question, just with respect to the talent. When you guys have been in the market, have you found the environment -- recruiting environment tough or you've been able to pretty much source what you need in terms of people?

It depends by region, Mike. For example, Germany is tough it's only 3% unemployment, whereas U.S. is easier. Certain areas in, like Brazil where it's just -- we need more talent. It's just no matter how many we recruit, we could do with more.

We have no further questions at this time. Please continue.

Okay. Thank you, everyone, for helping us on this call. And again, in summary, we think we had a very good quarter, pleased with both the top and bottom line performance. And we look forward to speaking with many of you at the Analyst Day, November 16. Thank you.

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