Open Text Corporation (OTEX) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Open Text Corporation Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call. [Operator Instructions] I'd like to remind everyone this conference call is being recorded today, July 31, 2013, at 5:00 p.m. Eastern time. I'd now like to turn the call over to Mr. Greg Secord, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Matt, and good afternoon, everybody. I'd like to start off the call with the reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to future performance of OpenText that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from the conclusion, forecast or projection in the forward-looking statements made today. Certain material factors or assumptions were applied in drawing any such conclusion, but while making any such forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing the conclusion, while making the forecast or projection as reflected in the forward-looking information, as well as risk factors that may affect the future performance and results of OpenText are contained in OpenText form 10-K and forms 10-Q as well as in our press release that we issued earlier today, each of which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to by law. In addition, our conference call will include a discussion of certain non-GAAP financial measures, reconciliations of all non-GAAP financial measures to their most directly comparable GAAP measures have been included in today's press release, which may be found on our website. With that, I'd like to welcome everybody to the call. With me today is OpenText President and CEO, Mark J. Barrenechea; as well as our Chief Financial Officer, Paul McFeeters. As with our previous calls, we'll read prepared remarks followed by a question-and-answer session. The call will last approximately 1 hour, with a replay available shortly thereafter. I'd also like to direct investors to the Investor Relations section of our website, where we have posted an updated PowerPoint that will be referred to in this call. We've also posted a summary table highlighting OpenText's historical trend in financial metrics. And with that, I'll hand the call over to Paul McFeeters.

Thank you, Greg. Turning to the financial results that will highlight our fourth quarter and then fiscal year 2013. Total revenue for the quarter was $347 million, up 13.6%, compared to $306 million for the same period last year. Originally, the Americas contributed 54%, EMEA 36% and Asia Pacific 10%. License revenue for the quarter was $78.8 million, up 1% compared to $78 million reported for the same period last year. We saw license revenue broken down by vertical sector as 23% from services, 11% from technology, 10% from consumer goods, 14% from financial services, 12% from basic materials, 14% from public sector, 7% in healthcare, 6% for industrial goods and 3% from utilities. Cloud Services revenue was $42 million for the quarter compared to $43 million in the third quarter. Customer Support revenue for the quarter was $165 million up 1.1%, compared to $163 million in the previous year. Professional Services and other revenue in the quarter was $62 million, down 4.3% compared to $64 million in the same period last year. Professional Services margin was 22.4% in the current quarter, versus 20.3% in the same period last year. Gross margin for the quarter before amortization acquired technology and stock compensation was relatively stable at 72.9% for both the current quarter and the same period last year. Pretax adjusted operating margin before interest expense and stock compensation was $102 million this quarter, up 20.8%, compared to $85 million in Q4 of last fiscal year. Adjusted net income increased by 22.5% to $85 million this quarter, up from $69 million in Q4 of the last fiscal year. Adjusted EPS was $1.43 per share on a diluted basis, up from $1.17 per share in Q4 the prior fiscal year, an increase of 22%. The sequential effect of foreign currency movement on adjusted EPS for Q4 was a positive $0.02. The adjusted tax rate for the quarter was 14%, the same as it was in the previous fiscal year. On a GAAP basis, income from operations before interest and taxes for the fourth quarter was $49.5 million, up 24.6% from $39.7 million in the fourth quarter last year. GAAP net income before taxes was $41 million in the quarter versus $29 million in the same period last year. Net income for the fourth quarter, in accordance with GAAP was $42.2 million or $0.71 per share on a diluted basis, compared to $8 million or $0.14 per share on a diluted basis the same period a year ago. Operating cash flow for the quarter was $65.2 million, inclusive of a $27 million litigation settlement, primarily related to a legacy EasyLink liability, compared to $79.8 million in the same period in the prior fiscal year. Adjusting for this one-time payment, operating cash flow for the quarter would have been $92.2 million, an increase of 16%. During Q4, we incurred $6.8 million on specialty charges, made up of $4.2 million in restructuring costs and $2.6 million in acquisition and other related costs. The restructuring costs were on account of EasyLink, with their restructuring activities, and a realignment and rebalancing of our operations in North America and Europe. With respect to the realignment, we expect to incur an additional $5 million to $6 million in restructuring costs in Q1 of fiscal 2014. There are approximately 59.2 million shares outstanding on a fully-diluted basis for the fourth quarter of fiscal 2013. Turning now to our fiscal 2013 results. Total revenue was $1,363,000,000, up 13%, compared to $1,207,000,000 in fiscal 2012. License revenue for the year was $280 million, down 4.8% compared to $294 million the prior year. Cloud Service revenue was $174 million in fiscal 2013. For fiscal 2013, we reclassified certain revenues related to our Managed Hosting Services business to our Professional Services and Other Revenues line in the amount of $4.8 million. We decided that since these services are being delivered, both on-premise and in the cloud by our professional service team, that it would be more appropriate to reclassify their revenues and cost of sales in Professional Services. The breakdown of revenue by quarter is $1 million, $1.3 million, $1.2 million and $1.3 million for each of Q1, 2, 3 and 4, respectively. Customer support revenue was $658 million, up 0.3% compared to $657 million in fiscal 2012. On a constant-currency basis, Customer Support revenue was up 2.1% year-over-year. Professional Services and other revenue for fiscal 2013 was $252 million down 2.1%, compared to $257 million in fiscal 2012. Gross margin for the year, before amortization of acquired technology and stock compensation, was 71.3% for fiscal 2013, compared to 72.5% for fiscal 2012. This reduction, overall, is due to the gross margin of the EasyLink business. Pretax adjusted operating margin, before interest expense and stock compensation, was $400 million for fiscal 2013, up 21%, compared to $330 million in the prior fiscal year. Adjusted net income increased by approximately 22% at $329 million in fiscal 2013, up from $270 million in prior fiscal year. Adjusted EPS was $5.57 per share on a diluted basis, up from $4.60 per share for the prior fiscal year, an increase of $0.97 or 21%. On a GAAP basis, income from operations before interest and taxes for the year was $198 million, up 32.3% from $149 million in fiscal 2012. GAAP net income before tax was $178 million in fiscal 2013, versus $137 million for the prior fiscal year. And income for fiscal 2013, in accordance with GAAP, was $149 million, or $2.51 per share on a diluted basis, compared to $125 million or $2.13 per share on a diluted basis for fiscal 2012. Operating cash flow for fiscal 2013 was $318.5 million, inclusive of a $27 million litigation settlement, primarily relating to a legacy EasyLink matter, compared to $266.5 million in a prior fiscal year, an increase of $52 million. Adjusting for the impact of this one-time item, operating cash flow for fiscal 2013 would've been $345.5 million, an increase of $79 million or 30%. The balance sheet at June 30, 2013. Deferred revenues of $294 million, compared to $287 million as of June 30, 2012. Accounts receivable was $175 million, compared to $164 million at June 30, 2012. Days sales outstanding were 45 days at June 30, 2013, compared to 48 days at June 2012. On June 30, 2013 our headcount was approximately 5,000, comprised of 1,300 in R&D, 200 in Cloud Services, 700 in Customer Support, 950 in Professional Services, 1,100 in Sales and Marketing and 750 in G&A. During Q4, we acquired ICCM Professional Services Limited, a provider of IT service management solutions. ICCM is based in the U.K. The purchase price for this acquisition was $18.9 million, inclusive of cash acquired of $5.1 million. Our target operating model is posted on our website in the Investor Relations section. We have revised the model for fiscal 2014. We have increased the range for gross margins for Licensed and Professional Services, each by 100 basis points. We have lowered the operating cost ranges as a percentage of total revenues by 100 basis points for both R&D and G&A. As a result, we've increased the range for non-GAAP operating margin to 26% to 31%. On July 31, the board declared a dividend of $0.30 per share for shareholders of record at August 30, 2013, payable on September 20, 2013. Now, I'll turn the call over to Mark.

Thank you, Paul, and welcome, everyone to our fiscal '13 Q4 earnings call. Let me begin with a few summary points before I get too deep into my prepared remarks. First, we have EIM right. We continue to see momentum build around our strategy and innovation in EIM, with both our customers and our ecosystem. In our customers, we are securing major new enterprise wins, tight EIM, including Hasbro and Ralph Lauren. In the ecosystem, we are seeing growth and expansion of our partner community on a worldwide basis. Over 150 new partners joined the OpenText family, including new digital agency and system integrators throughout the last 12 months. Further, we see more and more industry thought leadership including, most recently, industry analyst Forrester Research, identified EIM and EIM strategies as a key investment priority for enterprises. EIM is the next generation of enterprise software and we are confident that our momentum around new wins and new partners will continue to build in fiscal '14. Secondly, we improved our annual adjusted operating margin by 200 basis points to 29.3%, while onboarding a significant acquisition, EasyLink, that was performing below our operating margin. Further, we added $174 million in Cloud Services revenue and grew our overall margin profile. Third, annual adjusted net income grew from $270 million to $329 million, a 22% year-over-year increase. And fourth, in a challenging environment, we grew license in Q4. We grew license in Q3. We grew license second half of 2013 over second half 2012 by 6%. And our EIM momentum is increasing. The topics I'd like to be covering today include our progress in fiscal 2013, our Q4 and fiscal 2013 results, the EIM market, and our views on fiscal 2014. Let us get right into them. Fiscal 2013 was a pivotal year for OpenText. The company set forth an ambitious but measured agenda. And I trust you can see, outside looking in, what I can see inside looking out: solid progress over the last 12 months. Let me start with my view of our important accomplishments in the year. We repositioned the company from content management to enterprise information management and thus expanded our aspiration centered on being a long-term strategic partner with the world's largest and most important enterprises and governments. I have a whole section reserved on EIM in today's remarks. Second, the company transitioned from many business units, small and large, to an organizing principle centered on 3 key areas: function, geography and customer. Today's organizing principles are clear. Expansive controls are concise. And the structural scale more effectively and with greater efficiency. Fiscal 2013 was the first full year with this improved structure, which led to improved operating performance. We have strengthened our existing leadership team with industry veterans such as Muhi Majzoub in Engineering, James Mackey in Corporate Development, Gary Weiss in iX and Cloud, Kevin Cochrane in Marketing and Manny Sousa in HR. We also promoted within the company, James McGourlay to lead Worldwide Customer Services and Walter Köhler to lead Worldwide Professional Services. We have the best team imaginable to deliver on our strategy. During the year, we were all saddened to see Greg Corgan in Worldwide Field Operations transition out of OpenText. But it was the right thing, as Greg needed to focus on personal matters. We all wish him the utmost best on his journey to a complete recovery. I've always been and will always be fully engaged with our customers and field teams. From account strategy to forecasting and pipeline management to closing business. I am deeply involved in sales operations and dedicated to leading our field organization while we continue our search for a Worldwide Leader of Field Operations. Further, we strengthened our field leadership teams across many of our selling regions. Simon Harrison in EMEA, Steve Best in North America, Graham Pullen in APAC, Robert -- Roberto Rogente joined to lead Latin America, Noriyuki Hayakawa-san joined to lead Japan and Bernadette Nixon joined to lead our corporate teams for BPM Inside Sales and our portfolio products. We also recently welcomed Jay Chou to OpenText, to lead our China operations. Our Field Team Leader positions are now filled. Our distribution strategy got wider and deeper during fiscal '13. We expanded our direct selling capabilities, our SAP relationship got stronger, gained a stronger focus on SIs and agencies, we created an inside sales function and hired our first 20 telesales personnel, and we added 157 new value-added partners during the year. Let me highlight some of our early successes from our new VARs in fiscal '13. Bytes Technology helped us close the SAP [indiscernible] in South Africa. Antochi [ph] helped us close CGE USC Technologies in Chile. Dotload helped us close the World Food Program in Italy. Enrico [ph] Hong Kong helped us close the electric company of Macau. We added Epam and CGI as new STIs and new XIs. And added Site Works as a new agency. Our license business grew 6%, second-half-over-second-half, in a challenging environment which demonstrates that our programs and investments are working and providing us momentum as we enter fiscal 2014. Our strong operating model got even stronger. And our operating performance improved while we made key investments in the company. You can see this operating performance improvement in the year-over-year margin expansion. We initiated a dividend program. We have always been committed to delivering value to our stockholders through technology innovation, strategic acquisitions and now, through a dividend program. We are innovating. Fiscal '13 was a turn-the-corner year for us in innovation. We have a better balance between innovation and consolidation. We introduced major new product releases such as InfoFusion, Archiving, 10.0, the Tempo Series and WEM 8.5, each of which are contributing to the company. And lastly, the cloud. During the fiscal year, we acquired 3 businesses: EasyLink, RKT and ICCM. RKT for reporting information visualization. And ICCM for SmartProcess applications, both on top of our BPM platform. With EasyLink, we acquired a cloud platform. The business performed in line to our expectations, was bright line accretive to our fiscal '13 results and is now pipeline platform for messaging services and Managed Hosting in the cloud. Unlike a majority of cloud businesses I have reviewed, OpenText is demonstrating a well-run business can operate profitably in the cloud. Fiscal 2013 was a pivotal year for OpenText and we have made solid progress. Let me transition on to our Q4 and fiscal 2013 results. In a challenging environment, we executed prudent management. And by prudent management, I mean we delivered adjusted operating margin, adjusted operating income and adjusting earnings growth both the year-over-year and sequentially. As for Q4, we delivered $347 million in revenue, up 13.6% year-over-year. License was $79 million, up 1% year-over-year and up 6% second-half-over-second-half. Adjusted net income was $85 million, up 23% year-over-year. And adjusted EPS was $1.43, up 22% year-over-year. Professional Services was back on track with $61.7 million of revenues and adjusted margin of 22.8%. Our adjusted operating margin was 29.5%, up 180 basis points year-over-year. America has contributed 54%, EMEA contributed 36% and APJ contributed 10%. We completed 20 deals over $500K. That's inclusive of our deals over $1 million, which were 5. Public Sector had its best performance in 5 quarters and our Services vertical had a strong quarter with 23% contribution. We also had a solid quarter in our ECM and CEM pillars. Whereas we grew license 1% year-over-year, 14% sequentially and 6% second-half-over-second-half, our execution was below our expectations in North America. The issues are related to deal execution in conversion. And I am focused on increasing the consistency of our performance in North America. Customers that purchased within the quarter included Alcatel-Lucent, Apotex Pharma, Consol Energy, Daimler in Southeast Asia, the Dangote Group Sahara, Deutsche Post, the European Food Safety Authority, Hasbro, MAN Diesel & Turbo, Marvel Entertainment, National Health Laboratory Service in South Africa, Ralph Lauren, State of New Jersey, Tullow Oil, the U.K. Nuclear Decommissioning Authority, U.S. Department of Education and the Wellington City Council in New Zealand. As for the full fiscal year, we delivered $1.36 billion in revenue, up 12.9% year-over-year. License was $280 million, down 4.8% year-over-year. Adjusted net income was $329 million, up 22% year-over-year. Our adjusted EPS was $5.57, up 21% year-over-year. Our adjusted operating margin was 29.3%, up 200 basis points year-over-year. Notwithstanding our challenges in license growth on the first half of the fiscal year, we remain prudent in operations and drove strong growth and adjusted net income in EPS, 22% and 21% respectively, and delivered record adjusted operating margin. Further, we entered fiscal 2014 increasing our adjusted operating margin target model by 100 basis points to 27% to 31%. Let me move on to the EIM market. Markets change. The PC era is dead. ERP has matured. The EIM era is just beginning. We live in an information society, where information is the lifeline of an organization. Information sources have exploded over the last years and with that, many challenges are created. From data sovereignty, fragmentation, management, security and more, making decisions has become more complicated due to the number of data sources. Our data suggests that less than 10% of the Fortune 5000 have a formal or comprehensive information management strategy. Not dissimilar to that of ERP 20 years ago, when the Fortune 5000 were under-automated, or running one-off, custom systems. It is time to invest in EIM. EIM allows enterprises to speed time to innovation, time-to-market and time to revenue, while reducing costs in governance and compliance risks. And since information is the ultimate competitive advantage in today's digital economy, Enterprise Information Management is becoming mission-critical for CIOs, to drive business insight, innovation and impact across all lines of business, from manufacturing to marketing to sales to customer services. I define EIM to include 4 technology layers, intersecting with 5 functional pillars. The technology layers include: Platform Technologies, Applications, Analytics and the Developer. The 5 functional pillars include: ECM, BPM, CEM, iX and Discovery. By 2016, EIM is estimated to be a $19 billion market, with a CAGR of 10%. These numbers do not include analytics. We strive to be #1 in each of our functional pillars, while delivering deep integration across them all. Today, I am announcing the most comprehensive and largest engineering project in the history of OpenText. That project is code-named Red Oxygen. Red Oxygen intends to bring new levels of integration across our EIM products and deliver a set of information management suites, each targeted to specific buying centers in the enterprise. Based on our EIM pillars, each suite will contain groundbreaking innovations to extend our market leadership in each of our core product markets. We will not rest until we're #1 in each pillar. Across suites, we intend to lever shared services for Process Management, Discovery and Archival. With unification, innovation and common services, we intend, with Red Oxygen, to make our products simpler to buy, simple to deploy, simpler to use, simpler for the developer. There is power in simplicity and power in what we believe to be the most exciting engineering project in OpenText's history. Project Red Oxygen will be unveiled in detail at Enterprise World in November. And to have some fun of this, William Shatner will be joining me live at Enterprise World for the launch. Project Red Oxygen, our largest engineering project in the history of the company, suites of information management software designed to work together, compelling new capabilities in integrations. We expect customers to benefit from Project Red Oxygen in the second half of fiscal 2014. With that, let me transition to 2014. I am outlining 4 core messages for the new fiscal year. First is what I call intelligent growth. OpenText is focused on growing our earnings, cash flows and creating value for our stakeholders while investing in those markets we know we can win in. Further, we know these investments and programs are meeting their objectives, when our license business is growing at the market rate, which we estimate today to be 10%. I call this intelligent growth. Second, establishing a broad EIM ecosystem as influential as the ERP ecosystem. The EIM ecosystem is internal and external to the company and includes the innovations I mentioned above and Project Red Oxygen, also going wider and deeper with our distribution, including our direct selling organization, inside sales, strategic partners, system integrators, agencies, OEMs and VARs. Further, creating compelling tool services and communities for the information developer and industry leading programs that help CIOs increase their adoption of EIM. The ecosystem is a force multiplier for OpenText. Third, improved performance in established markets. Whereas we have made marked progress in our established Western European and North American businesses, there's still more progress we need to make. This ranges from operations, programs and execution, all contributing to improved results. Fourth, accelerated results in fast growth markets. OpenText defines fast growth markets as Latin America, China, India, Southeast Asia, Japan, South Africa and the sub-Saharan, Middle East, as well as Russia and Eastern Europe. We have identified over 3,000 key target accounts and believe we can see a $2 billion market opportunity for OpenText in these fast growth markets alone. And we are now focused on accelerating our results here. The progress over the last year and the defined market opportunity gives me the confidence to invest in these fast-growing markets. We have penetrated only 20% of the top 3,000 accounts in some form. We have proven we can close million dollar deals and have established customer references in fast growth markets. It's time to invest more and accelerate our results. Let me wrap up my remarks for the call. Fiscal 23 was a pivotal year. We launched EIM, established the organization structure, strengthened the leadership team, put in place a functional model for sales with a named account strategy and built stronger distribution channels. We fostered an innovation culture, entered the cloud and proved our operating performance, initiated a dividend program. And our license business grew 6% in the second half of the year. Fiscal 2013 highlights include: 12.9% revenue growth, 22% adjusted net income growth and 21% adjusted EPS growth. The ERP era has fully matured, the EIM era begins. And we are well underway in the largest engineering project in the history of the company, Red Oxygen, which will define the future of EIM and OpenText. We have laid out another ambitious year ahead: intelligent growth for the EIM ecosystem, improved performance in our established markets and accelerate our results in our fast growth markets. I find that momentum tends to build on itself. And I am confident that our pace of improvements in fiscal 2013 will build on itself as we enter fiscal 2014. With that, let us open the call up to your questions.

[Operator Instructions] Your first question comes from the line of Mr. Richard Tse of Cormark Securities.

Mark, you talked about adding about 150 new partners in the quarter. I just had a question in regards to the partner contribution this quarter. If I look at your supplemental financial stats, it looks like the contribution has gone down about 31% from about 39% last year. It's probably the lowest it's been in quite some time. Can you give us some color on that?

Well, the partner count is, I hope my remarks were clear, were really over the fiscal year. And as we look to accelerate our results in the fast growth markets, they are primarily -- not primarily, I'd expect about half of our business in the fast growth markets to come through partners. They tend to be more partner-oriented. So I don't read too much into kind of a quarter variance of direct or indirect. The count was really, at 157, was a full-year number. And it's sort of building the strength as we come into '14, with our focus on fast growth markets.

Okay. And then when you talked about execution issues in North America in the quarter, can you give us a bit more color on that and what you're doing specifically to address some of those issues?

Yes, sure thing. So we delivered 78.8 in license in the quarter. And every million counts, of course. And another $3 million, $4 million, $5 million on that basis, on a 70.8 basis, would really contribute to a growth rate. Our issues in North America were a bit focused in the U.S. West, as well as Canada. And was primarily related to sort of closed strategies and converting pipeline into wins. So I and our geo leader, Steve Best, are highly focused on reviewing the pipeline, which is, it's not a pipeline program problem, it's a -- it was a conversion problem in Canada and the U.S. West. And Steve and I spending sort of a disproportional time to get that consistency back in North America, primarily in Canada and U.S. West.

So the -- it was the execution, more than the environment that caused the...

Yes, that's correct. It wasn't competitive, not the environment. We had the pipeline, we simply couldn't convert it.

Your next question comes from the line of Mr. Paul Steep with Scotia Capital.

Mark, actually, maybe just to close off on that for a second. On the conversion side, what have you done post the quarter to sort of address some of the conversion issues if the pipeline's actually healthy, in terms of getting the process tightened up?

Well, our sort of style is to sit down with the teams and do a deal review, a stage review, pipeline review and a closed plan review. And that's what we've done.

Fair enough. I guess the second question is, if we'd look sort of broader term and take it back up to the model and look at the 100 point sort of lift on R&D and G&A as well as the margin moves, maybe talk a little bit behind the thinking or the confidence, I guess, to sort of shift the model and bump up where you think operating margins going to land next year?

Yes, Paul, it's Paul. I mean we're -- we showed in our model in the IR deck, which you may have not have had a chance to look at yet, just how we turned it in '13. So if I just go into the operating costs, first of all, we end up the year, in R&D, at 12%. So we move from '13 to '15 and '12 and '14, I think we're comfortable in that area. As we talked about in the past, Muhi Majzoub, the new head of engineering, has done some rationalization of his resources, still continuing to put the light money into innovation and some of the product initiatives Mark's talking about like Red Oxygen. But also increased percentage of headcount in R&D in India, of course is a lower cost model. So with those initiatives and the results we've seen FY '13, very, very confident with the new range and development of '12 to '14. G&A, as you've seen over time, with scale as we on-board acquisitions, we take out G&A of acquired entities. So we finished the year at 7.7. So moving that down, from 8 to 9 to 7 to 8, is a kind of a natural consequence. So in those 2 areas of 100 basis points for each of those categories, a high level of confidence. Next, Professional Services. Once again, we finished up the year at 22.2%. It's, in our view, a sustainable number. And we had arranged, that beat the upper end of our range. So we've moved out again, in terms of a contribution, up to 21 to 23. So 22.2 with the fiscal year and we had a little hiccup in Q3. And without that, I think we'd be well in the upper end of that range. So again, high level of confidence. And then the last area that we improved our operating margins was the product license area. And that is also as a result of a couple of things. One is that we've bought a couple of our third party providers in SAT and ICCM and we're also continuing to rationalize some of the third-party software in our products, i.e. reducing some of the dependency on that with our own engineering capability. So we track to 94.2 in the year, again beating the upper end of our range of our operating margins, so move that up. So each of those 4 categories will we move and improve the 100 basis points. We definitely have a high confidence level in.

That helps a lot, Paul. But the takeaway message, overall, is tightening up against actuals apart from a couple of points you made there on license, right?

That's correct. Yes. We've already -- we're already trending into these ranges, yes.

Your next question comes from the line of Blair Abernethy from Stifel, Nicolaus & Co. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Just, Paul, on the ICCM and resonate acquisitions, can you just walk through what the revenue contribution would've been in Q4 from those acquisitions? And did the -- did either of them have an impact on the higher service margins?

The answer to the last part, Blair, is no. And the first part, RKT is negligible, because most part of their revenue was third-party cost to us. So the bigger impact of that would be in the cost of sales back to the improvement in the cost sales of license margin. So very little revenue. In ICCM, we closed in May, again on a trailing basis, there is sub-$6 million for FY -- it wasn't even material to disclose in the K. But for the quarter, it was about $500,000 in all revenue lines for ICCM. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Okay. In Q4?

In Q4. Correct. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: And then -- I'm sorry, Resonate?

Oh, Resonate was the one I mentioned first, where their contribution to revenue is negligible, because 80% to 90% of their revenues was our cost of sales. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Okay. All right. I'm sorry. I thought you said that, that was AKT.

That's right, Resonate is RKT.

Resonate Knowledge Technologies, a.k.a. RKT. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Got it. Okay. And the next question I just had was on the R&D headcount. I think, did you say it was 1,300?

Yes, 1,300. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: So what percentage of that, roughly, would you say is based in India at this point? And is that going to shift materially from where you are now?

Yes. Approximately 300 people, about 20%. And I think it's -- and I'll let Mark supplement this answer -- and I think it's 30% that's going to grow as we grow our R&D too.

Yes, I mean, we -- Blair, we've selected a set of locations that are preferred hiring, in our preferred innovation centers. And certainly, Hyderabad, India is one of them. Just to call out the few: Grasbrunn outside of Munich, our Canadian location, Canada, the Bay Area, Bellevue and Tucson and Hyderabad. So we'll continue to consolidate into Hyderabad. Hire new there, as well. Blair H. Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: And a last quick question for me. Just Paul, on maintenance, any commentary on pricing and renewals in -- at the end of the year?

Yes, we're staying very consistent. [indiscernible] just has not changed at all in the last year. As I mentioned, year-over-year, our revenue was up just over 2%. And we should be consistent in the model of us putting onboarding new maintenance at 20%. So yes, we're maintaining our metrics there, which is positive in our view.

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

Mark, you mentioned sales leadership roles were completed, obviously, except for the one you're trying to replace, Greg. What about the quota-carrying reps, are you full there, or do you expect to add some new bodies?

Kris, you're a little hard to hear, I'm sorry.

The sales leadership roles, you mentioned they're mostly completed. I just need to get an update on the quota-carrying reps, where you are in that process? Are you still adding or subtracting?

Yes, fair enough. So on our quota-carrying reps, I'd describe fiscal '14 as sort of a normal year for us. As we entered '13, we were just clearly behind in our capacity. So '14, I'd describe much more as a normal planning year, as we're looking to, in our established markets, really gets better. Slight increase coverage, but more productivity gains. And our headcount investments going more towards our fast growth markets, as I described in my prepared remarks. So I'd call it much more of a normal year for us in adding new quota-carrying reps. In addition to that, more about halfway hired on our telesales organization. And we're able to kind of build out our inside sales function of telesales, given that we move more strongly to a named account model and we know where our partners are hunting. We can clearly cut off a set of accounts for us to call into for those products we think we can sell remotely by the phone and over the web. So I'd describe it much more as a normal year for quota-carrying reps, except perhaps for the telesales piece, which we're building new capacity.

Okay. And on the U.S. West and Canada, were you had some misexecution there on sales, is that because there are new account managers that are not hitting their stride yet?

Well, I -- I don't want to create the wrong impression here. I'm not calling these selling hubs broken. We need more consistency out of these 2 areas. More consistency. And in part of it is, sort of getting leadership on to kind of the OpenText way. And the discipline of deal overviews and just a solid cadence of closing business. So I don't want to call them broken, I just -- more consistency, need more consistency in their execution.

Okay. Fair enough. And just on that, I mean, are the sales guys going to hit their accelerators? Are they going to be happy? Are you -- is there any risk that you might lose some of your top guys just because the license revenue was a bit weaker than I think everybody was expecting?

We are expecting normal attrition here in fiscal '14. We've been through our big comp plan changes in 2013. We roll into '14 with minimal changes to our plans. We've actually just held our company and worldwide sales kick-off and a lot of enthusiasm around Red Oxygen, named accounts, minimal changes in comp plans, count assignments, account segmentations, fast growth markets. I'd expect us to trend sort of to market averages. And maybe even optimistically a little below that, here in '14.

Your next question comes from the line of Eyal Ofir of Clarus Securities.

Just to follow-up on the cloud. I know that you guys talked about transitioning some revenue from cloud into Professional Services. But even if you adjust for, I think it was a little weaker than expected, was there any dynamic at play there, you guys can talk about?

Yes, I think if we do the adjustment Q3 to Q4, the businesses were relatively flat $42 million to $42 million. Paul, correct me if my math is wrong, but I think it was roughly $42 million to $42 million. And when we acquired EasyLink, it was a business declining for multiple years in a row. And we felt that with our execution and new products, we could hold the business flattish in our first year of operating the business. And improve its margin. And we delivered both, holding it flattish and improving its margin. So I think when you back out the re-class for Q3, you'll find the business flat Q3 over Q4. For us to grow the business, we'll be adding new services. In particular, the one that we're most optimistic about, I'm most excited about, is SecureiX, which is a secure notification, e-mail and managed file transfer of service into the network. Paul, I get the numbers, roughly, right?

Sorry, so just beyond that, how's your new, essentially, your new offerings going so far? I know you're offering Tempo Social and Tempo Cloud. How are the clients reacting to these new services?

I'd say we're off to a medium start. I don't have the numbers right in front of me. Roughly, we had a couple of hundred active trials going on across Social and Box in the cloud. So I'd say we're off to a medium start and a couple of hundred trials going on.

Okay. And then just, can you just touch on, first of all, was there any product category that was weaker from a license standpoint? And maybe also, obviously, focused your attention on North America, but how did Europe do this quarter?

So I'll -- let me go through the product pillars a little bit. We had a strong ECM quarter. And when I look at the competitive dynamic, it really feels as if it's a 2 horse race out there, us and IBM. But we had a strong ECM quarter. In the CEM space, we had direct wins against Adobe, with our new CCM and WEM 8.5 offering. So I was actually quite pleased with the new product that we brought to market. It's been about a year under engineering. And it's a complete, modern HTML5 offering of products for building new, interactive websites. We've been competing head-to-head against Adobe and we've done extremely well. So I think the highlights for us are certainly ECM and CEM. I'd say BPM performed fine. And iX Capture did fine as well.

Okay. And just a comment on Europe and I'll pass the line.

Yes, I don't have the -- I'm trying to just the EMEA breakout. It was roughly 36% contribution within the quarter. And I'd say no change to the dynamic. The dock region executed well for us. We did fine in Northern Europe, in the U.K. And Southern Europe continues to be a bit soft, but not unexpected. It's been -- Southern Europe region across technology has been a bit soft over the last whole year or 2.

Your next question comes from the line of Paul Treiber of RBC Capital Markets.

You've been out in the market with your EIM message for the last year or so. Now it seems like Red Oxygen is a significant investment in that vision. Does Red Oxygen reflect the interest that you're seeing from customers in EIM? And then also their feedback on the existing roadmap?

Absolutely. And I'll give you one word behind Red Oxygen and it's integration. And what we've heard loud and clear from our customers to continue the momentum behind EIM is, above all, integration. Yes, new capabilities and continue to add features and functions, but continue to add integration both inter and intra pillar. So that will be one of the key things we deliver in Red Oxygen, is deeper integration across the user experience, technology stack and information model.

In light of that, do you think that the existing products roadmap may be restraining some of the demand at a high-level you may be seeing or interest at high level?

Well, this is a balance, right? I mean, we have to continue to sell point solutions along the way and innovate both functionally and with integration. This leadership team, across that, probably, has 100 years of experience of doing these sort of transitions. And we're off to good start, sort of managing that transition. We'll drive our pipeline and closure for the products we have. We'll continue to talk about our vision and our future. And then deliver against that, selling what we have today but keeping folks interested in what we have tomorrow. And showing them a clear path of what they buy today, how they can get to tomorrow.

And I think you previously mentioned there's about a 6 months development cycle on your point solutions, at the existing point solutions. Will the focus on Red Oxygen, will that impact that development cycle in any way? And then also, could you provide an update on the BPM product, if we should expect an update before Red Oxygen?

It's about a year cycle. We're trying to stay on an annual cycle, or a 12-month cycle for the products. And I don't know how to put a percent weight, but I'm going to lead with key integrations. Red Oxygen is being led, really, by this notion of integration. Then in each of the pillars, an element of key capability. And I'm -- I'm going to have to hold myself back of talking about some of those key capabilities. I would not expect another release of BPM before Enterprise World. We think it was last quarter or about 100 or 120 days ago, we announced BPM Assure into full GA, which was our latest set of case management apps on top of the NBPM platform. So that will carry us through Red Oxygen and carry us through first half of the year.

Your next question comes from the line of Derrick Wood of Susquehanna Financial Group.

This Rakesh Kumar for Derrick Wood. Mark, I wanted to ask about, so you foresee any structural changes after the departure of head of sales?

No, not at all. We're out in the market searching. Our search is going well. In the interim, I am leading the organization. I will fill -- we will fill that role and in the interim, I'm leading it 100%. So I don't envisage any structural changes.

I guess, I had a question on, of weakness in financial services vertical. Do you see any different dynamic order there? And any impact of federal budget flush in the first quarter that you foresee?

Well, I'll tell you, most CEOs have probably dreamed of a federal budget flush. We're certainly not seeing it. I don't think most folks are anticipating it. Second, on the financial services vertical. Just kind of looking at our numbers a little bit. Last quarter, it was about 12% of our business, 14% of our business. And first half of last year it was 18% and 19%. We've been sort of trailing on average, sort of in the mid teens. And when I look at our offering right now in BPM, there's actually quite a bit of interest around Process Management, shared service centers and case management and financial services. So we delivered about 14% of our book of business in financial services last quarter, that has roughly an average to how we've been performing. And I've seen a fair amount of interest around shared services and process consolidation.

And just one last question. So how should we look for license growth in fiscal '14, as we model next year?

Sure, it's a great question. So we had 1% growth in Q4, in a challenging environment, in challenging environment, as we -- as you've all seen many other companies and how they've reported. We grew in Q3 second-half-over-second-half, we had 6% license growth. Our estimates show the market growing at 10%. And that remains our mantra for our investments. And our aspirations is to -- we'll know that our investments in our programs and our initiatives are executing, when we're growing at the market-rate. We exited the second half, roughly, at 6%. We know the market's growing at 10%. And our aspirations are to get to the market rate.

Your next question comes from the line of Gabriel Leung of Paradigm Capital.

Mark, maybe just a point of clarification. When you talk about targeting sort of a 10% license growth of the year. Are you thinking organic, or are you thinking with a couple of acquisitions in there?

Yes, I haven't put a timetable on it, just to be clear. Those are our aspirations. And we'll know it when we have it in our results. And that rate is an organic rate, not an acquired rate.

We have time for one more question, from the line of Richard Tse of Cormark Securities.

Just going back to this execution issue now. I know you're addressing this, but given that you've increased your sales capacity, let's say 20% from a headcount perspective. Can you give us some sense of what the pipeline growth is looking like this year versus last year, given that change?

Well, we're not releasing specific pipeline numbers. But our pipeline has grown year-over-year. And the OpenText way, the way we run our organization, is we -- we're primarily a named account model in our enterprise teams. And we look at our account executives to own their, roughly, 20 accounts per AE. And we pair a set of AEs up with, what we call an AD, an Account Developer, who helps drive programs initiatives and contacts into those named accounts to help build the pipeline. And we pay attention to where the pipeline is, where our accounts is. We typically don't place capacity ahead of pipeline. So my macro comments are, our pipeline is up year-over-year. We're not disclosing specific numbers. I like our methodology a lot, of pairing up account developers with account executives. And we tend not to place capacity ahead of accounts or having a capacity to build pipeline.

Mr. Barrenechea, please continue with your closing remarks.

All right. Well, I'd like to thank everyone for joining our Q4 and Fiscal 23 earnings call with Paul and myself. And I'd like to leave you with a few thoughts. The first is, on a challenging environment, we grow our license 6%, second-half-over-second-half. We exited the year with an adjusted operating margin at 29.3%. I believe we've laid out 4 compelling programs as we roll into fiscal '14. Intelligent growth, building a broader EIM ecosystem, improved performance in our established markets and accelerated results in our fast growth markets. And I'm eager to continue the discussion in the EIM community, our stakeholder community, our partners and our partner community around Red Oxygen, the largest engineering project in the history of the company. I think one that will be a defining event for Enterprise Information Management. Thank you for your time today. And look forward to our next discussions.

Ladies and gentlemen, this concludes the OpenText Corporation Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call for today. Thank you for participating. You may now disconnect your lines.