Open Text Corporation (OTEX) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the OpenText Corporation First Quarter Fiscal Year 2014 Results Conference Call. [Operator Instructions] Today's call is being recorded. And at this time, I would like to turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Britney, and good afternoon, everybody. I'd like to start the call with a reading of our Safe Harbor statement. Please note that during the course of this conference call, we may make statements relating to the 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 conclusions, 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, projection as reflected in the forward-looking information, as well as the Risk Factors that may project the future performance results of OpenText are contained in OpenText's Form 10-K and 10-Q, as well as in our press release that was released earlier today, each of which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to do so 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 would 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 the 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 would be referred to during this call, as well as a summary table highlighting OpenText's historical trend and financial metrics. And with that, I'll hand the call over to Paul McFeeters.

Thank you, Greg. Turning to the financial results, I will highlight our first quarter fiscal year 2014. Total revenue for the quarter was $324 million, down 0.5% compared to $326 million for the same period last year. Regionally, the Americas contributed 54%; EMEA, 37% and Asia Pacific, 9%. License revenue for the quarter was $55.3 million compared to $55.7 million reported for the same period last year. We saw license revenue broken down by vertical sector is 19% from basic materials and conglomerates, 17% from services, 14% from financial services, 13% from healthcare, 12% from technology, 12% from public sector, 5% from utilities, 4% from customer goods, and 4% from industrial goods. Cloud services revenue for the quarter was $42 million compared to $44 million in the same period last year. Cloud services gross margins were 65.7% in the current quarter compared to 59% in the same period last year. The current quarter margins were up partially due to a one-time impact of a reversal of certain sales tax liabilities. Absent this, the cloud services margin in the current quarter would have been approximately 51%. Customer support revenue for the quarter was $186 million, up 3.9% compared to $162 million in the same period last year. Customer support gross margins were 86.8% in the current quarter compared to 84.1% for the same period last year. The increase was due to efficiency gain from the centralization of technical support resources, and by a reduction in third-party technology costs. Professional services and other revenue for the quarter was $59 million, down 8.5% compared to $65 million in the same period last year. The professional services gross margin was relatively stable at 22.1% in the current quarter versus 22.5% for the same period last year. Gross margin for the quarter before amortization of acquired technology and stock compensation was 72.9% compared to 70% for the same period last year. Pretax adjusted operating margin before interest expense and stock compensation was $99 million this quarter, up 5.8% compared to $94 million in Q1 of the last fiscal year. Adjusted net income increased by 6% to $82 million this quarter, up from $77 million in Q1 of the last fiscal year. Adjusted earnings per share was $1.37 on a diluted basis, up from $1.31 per share in Q1 of the prior fiscal year, an increase of 4.6%. The sequential effect of foreign currency movement on adjusted EPS for Q1 was a positive $0.02. The adjusted tax rate for the quarter was 14%, the same as it was last fiscal year. On a GAAP basis, income from operations before interest and taxes for the first quarter was $52 million, up 29.8% from $40 million in the first quarter last year. GAAP net income before taxes was $49.6 million in the current quarter versus $35.6 million in the same period last year and income for the first quarter in accordance with GAAP was $30.6 million or $0.52 per share on a diluted basis compared to $19.4 million or $0.33 per share on a diluted basis in the same period a year ago. Operating cash flow for the quarter was $79.9 million compared to $61.8 million in the same period last year. There were approximately 59-point million shares outstanding on a fully diluted basis for the first quarter of fiscal 2014. On the balance sheet at September 30, 2013, deferred revenues are $282 million compared to $294 million at June 30, 2013, and $270 million as of September 30, 2012. Accounts receivable was $153 million at September 30, 2013 compared to $175 million at June 30, 2013, and $179 million at September 30, 2012. Days sales outstanding were 43 days at September 30, 2013 compared to 45 days as of June 30, 2013 and 47 as of September 30, 2012. On September 30, 2013, our headcount was approximately 5,300, comprised of 1,500 in R&D, 200 in cloud services, 700 in customer support; 1,000 in professional services and 1,150 in sales and marketing, and 750 in G&A. During Q1, we acquired Cordys Holdings B.V., a provider of BPM and case management solutions, offering one platform of cloud, mobile and social capabilities. Cordys is based in the Netherlands. The purchase price of this acquisition was $32.2 million. Last quarter, we revised our target operating model for fiscal 2014. We increased the range for gross margins for license and professional services, each by 100 basis points and lowered the operating cost ranges as a percent of total revenues by 100 basis points for both R&D and G&A. As a result, we increased the range for non-GAAP operating margin to 27% to 31%. Our target operating model is posted on our website in the Investor Relations section. On October 30, 2013, the board declared a dividend of $0.30 per share for shareholders of record on November 29, 2013, payable on December 20, 2013. Now I'll turn the call over to Mark.

Thank you, Paul, and welcome, everyone, to our fiscal '14 Q1 earnings call. There are 3 main things I'd like to speak about today in my prepared remarks. The first is intelligent growth. These are the operating principles for our financial strategy and our overall business model that guides the organization every day. Second, our Q1 results. I'll go a little deeper this call to provide additional insight into the quarter and our performance. And then third, Red Oxygen. Customers have begun to gain access to our next big release. They like what they see and I'll spend some time today highlighting the major aspects of Red Oxygen. Let me get right into it with intelligent growth. We're focused on creating value for our stakeholders. We do this by growing our earnings and our cash flows. We do this to our dividend program, and by on-boarding acquired assets to our operating model that can create value for our stakeholders, while investing in innovation and markets we know we can win in. We lead with value, we invest for growth. We do not chase growth at all cost, rather we have an operating principle of creating tangible and sustainable value. We call this intelligent growth. Over the last 2 years, we have grown our cash flows and earnings. We achieved this while creating a stronger, more efficient business. And over this period of time, to a large degree, we have insulated our cash flows and earnings growth from the ups or downs of license. This could not be clearer than in our Q1 results. Our adjusted operating margin was up 6% to 30.6%. Our operating cash flow was up 29%. Our adjusted net income was up 6% and our adjusted EPS was up 5%, on essentially flat revenue. We continue to invest in innovation, our sales force, customer support and marketing. We continue to make these investments and believe they will yield tangible results as measured by organic growth. This is what we call intelligent growth. Let me transition to Q1 results. Last quarter was a challenging environment for many tech companies, including OpenText. Let me talk about an important contributing factor to our essentially flat revenues. We all read the same newspapers, and the U.S. government shutdown and default debates were disruptive to closing business towards the end of the quarter. And the disruption was widespread. Software sales are predominantly back-end loaded. And when the government of the largest economy in the world begins to shut down and talks of financial default and then ultimately shuts down, it causes purchasing in many countries, in many industries and in many governments due to large-scale uncertainty. Again, notwithstanding our essentially flat revenues, we deliver strong operating cash flow of 29%, adjusted operating margin of 30.6%, adjusted net income of $81.5 million and adjusted EPS of $1.37. Let me get into the revenue number with a little more detail. In EMEA, our revenues were up by $4.8 million compared to Q1 last year, with a strong contribution from customer support. In the Americas, our license and customer support revenues were up, while our overall revenues were down by $2.6 million, primarily due to our professional services business, which was down $5 million, but I note our overall PS margin was up to 23.4%. Further, we continue to expand our Latin America operation, though the revenue contribution remains small and will take some time to scale. In APJ, our revenues were down $3.3 million and within that $3.3 million, cloud services were down by $1.6 million, driven by foreign exchange and a workload change in the Japan market. The market is moving away from broadcast fax, which is a lower end service within our overall messaging services business. We also had a large license deal that pushed into Q2, which we have subsequently closed. Within the quarter, we had 5 license transactions over $1 million. Eight transactions between $500,000 and $1 million. 58% of our business was direct, 42% partner influenced. Now regards of license by industry services, people-related businesses contributed 17%; financial services, 14%; healthcare, 13%; technology, 12%; government, federal, provincial, state and local, 12%; and basic materials, 12%. By total revenues, Americas was 54% of our business; EMEA, 37%; and APJ, 9%. Customer support was 52% of total revenues, license was 17%; professional services, 18%; and cloud, 13%. Within the quarter, margin performance was solid and up across all our business lines. License margin was 94.5%; cloud services margin was up 65 -- up to 65.8%; customer support margin was up to 86.9%; and professional services margin was up to 23.4%; all of which contributed to our adjusted operating margin of 30.6 -- 30.6%, up 7%. Customer highlights include: Bank of Hawaii purchased our ECM platform with plans to migrate its legacy solution for business process improvements, increase productivity and future growth expansion. Transportation For London, also known as TFL, selected Tempo Social. TFL will use Tempo Social as a communication platform for incident reporting and service delays in quality. This information is vital for the organization's own internal processes, the monitoring of incidents allows TFL to produce accurate and timely and statutory in performance reporting. By learning from past incidents, TFL ultimately improved the service to the growing numbers of customers. A great example of what Tempo Social can do. Other wins include the National Security Technologies Group, who selected our ECM platform for information management at the U.S., Nevada National Security site. Volkswagen of India and NRI, the Nomura Research Institute in Japan, each selected our BPM platform. Also within Q1, as Paul mentioned, we closed the Cordys. Cordys is based in Putten, the Netherlands, and is the market-leading BPM platform as a service provider, deployable both on premises and in the cloud. Cordys brings a marquee customer base that includes customers such as Siemens, Mercer, Pacific Blue Cross, Tata Steel and Fujitsu, as well as a cloud based BPM platform. Lastly, we also on-boarded new EVP of worldwide field operations, John Hunter, who is a seasoned, world-class sales executive and off to a fast start. John joins us from CA where he led a multibillion dollar Americas field organization. He's experienced, driven, hits the ground running and shares the passion for our mission and intelligent growth. John will be with us at Enterprise World where many of you will have a chance to meet with him there. John is a great addition to my executive leadership team. Let me transition to my third topic today, Red Oxygen. Red Oxygen is a project name, the codename, for the next big release of our software. We have over 500 customers and partners beginning to experience Red Oxygen through our beta program, and they are excited about what they see. This is our first choreographed release in the history of the company, and Red Oxygen is important enough that I want to spend some time on it today. Red Oxygen will help our customers digitize, gather information, be more secure, go mobile, be social, build revenue-generating applications, consolidate the information platform and go global. In a recent industry report, it was referenced that it's time for CIOs to invest in Enterprise Information Management. And only 13% of the respondents indicated that they had a formal Information Management strategy. With that in mind, the first principle behind Red Oxygen based on customer feedback include: focus on new large EIM functional blocks; deeper integration across our modules; information flow similar to ERP flows like order-to-cash; compelling consistent user interface; enabling the developer, synchronize releases. These are some of the first principles behind Red Oxygen. With stronger integration and a synchronization of our releases, we intend to go to market with larger, stronger packaging. We'll have 7 main packages with options versus hundreds of stand-alone modules. This is a big step forward for the company. These 7 packages are Content Suite, Process Suite, Discovery Suite, Information Exchange Suite, Experience Suite, AppWorks and Tempo. 7 package -- 7 packages versus hundreds of modules. Within Red Oxygen, our suites of software will include a new restful service layer, kind of a modern-age ply layer, targeted at the developer and embedded workloads. Across these suites, we'll have over 300 points of integration. More EIM integration at EMC, Microsoft, IBM or Adobe. Integration equals value and time to adoption. Let me touch on some of the Red Oxygen highlights suite by suite. Content Suite will include an easier to use interface. API reports, a report writer and archives in the cloud. OpenText Archive with a single platform for archiving Google app, Exchange, notes, file systems and all of OpenText software. This will reduce cost and enable best governing practices. Discovery Suite will include more connectors in a new CIO passport for information. InfoFusion is ready for search in the enterprise with this next release. Process Suite will have swap process apps including case management, case intelligence and flexible deployment for on-premises or in the cloud. Experience Suite will include omni-channel publishing and adaptive media, web and social analytics, e-commerce connectors and our new HTML5 user experience. We give you one user experience across all devices. Information Exchange Suite will include secured e-mail and large file acceleration while advancing our messaging services layer for fax, notification and EDI services. Our EasyLink network will have its first programmable interfaces. This suite will include a new seamless user experience, real-time audit trails and outlook integration. Tempo will include a new module for content offering that we call Tempo Note. Also, Tempo Box, Tempo Social and Tempo Note will be integrated to ensure that documents are managed, secured and governed within content server. Further and perhaps, most important, developers can begin to create software using our suite with AppWorks. AppWorks is our new application gateway, new API layer and a new online developer network called the OpenText Developer Network or OTDN, for short. OTDN will include software for download, social communities, and an example libraries for creating EIM programs. Developers can begin writing code using our suites within hours. Pre-Red Oxygen, it will take weeks for a new developer to get productive. In the future, we'll host online environments, so developers can begin writing code in seconds. As I like to say, the developer makes all things possible and Red Oxygen is developer ready. Red Oxygen is the biggest release of software ever from OpenText and will further our EIM products and strategy. It will also be a strong indicator that we have turned the corner as an innovator. We expect Information Exchange Suite, Content Suite, Tempo and AppWorks to be GA by the end of fiscal 2 this quarter. And Process Suite, Experience Suite, Discovery Suite to be GA by the end of fiscal Q3 or next quarter. Red Oxygen will help create a new product cycle for us in the second half of the year. We expect Red Oxygen will help secure existing customer investments in our software, improved adoption of existing products, accelerate time to new modules and features and attract new customers to OpenText. Let me summarize the call. We are focused on intelligent growth, as I outlined earlier in my prepared remarks, which is creating value for our stakeholders through our operating principles. The quarter was solid for cash flow, margin and adjusted earnings on essentially flat revenues. We could not overcome the macroeconomic challenges towards the end of the quarter, specifically, the U.S. government shutdown. We have on-boarded a great executive to lead the field, John Hunter, who will join us on Enterprise World. Further, I'm delighted customers are starting to get excited about Red Oxygen and may see the value, larger functional block, deeper integration, synchronized releases, plus enabling a simpler go-to-market approach for OpenText. This is a technology foundation for the future of the company. You'll be able to experience Red Oxygen at Enterprise World, and the OpenText team is eager to unveil it to all our customers, partners and stakeholders. With that, I'd like to open the call to your questions.

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

With your comments on the government shutdown, just want to get a sense of post that shutdown today, where your sales stands, have things sort of noticeably turned around? And I've got a related question to that after.

Yes, sure thing. No, it certainly feels like business is getting back to normal, post the shutdown. We enter Q2 with a strong pipeline. We, of course, have to convert that pipeline, but we entered the quarter with a strong pipeline. I also noted that we had a large deal that flipped in Q1 in Asia Pacific that we have subsequently closed. So things are returning to normal now that the shutdown is over.

So related to that, I think in the past, you've broadly talked about growth expectations in the order of 10% on licenses. Given that turnaround in terms of the pipeline, should we to expect that that's a pretty good bogey that we're shooting for this year?

Well, it is -- all our investments can -- the design point for those investments are to grow at the market rate, and best that we can continue to tell that market rate is near 10%. As you know, we don't have guidance. We provide an operating model for the company. But I can tell you, we're focused on getting the company and our investments to the market ready.

Okay. And then one last question on Red Oxygen. Given that you're sort of consolidating the portfolio, I'm guessing that the price points certainly will be higher. So can you give us what your ASP was this quarter, and your expectations for the sort of ASP of each module looking out into Red Oxygen?

Yes, our ASP -- our average sales price is $268,000 for the quarter. And it's probably a bit of a longer discussion, kind of pillar by pillar and maybe we'll take that off the call.

Our next question comes from the line of Scott Penner with TD Newcrest.

I just like to ask a bit about the -- just the capital allocation strategy as it stands right now. As you've kind of pointed out, the license revenue has been a bit disappointing the last 2 quarters. And if you look at it, as you mentioned, the cash, even net of acquisitions, is up over $50 million in the last couple of quarters. So what can you do -- what is the plan for that cash going forward? Is it secure additional acquisitions and then assuming that's probably the answer, what is the -- what kind of comments can you give us on the outlook for the deal environment right now?

Thanks for the compound question. On the first part of the question, if I look back over the last 2 years or so, the company has done an amazing job operationally of sort of insulating our earnings growth, our cash flow growth from the variability of license. And that's an incredible achievement for the company, and that's part of what I call intelligent growth. Being able to grow our cash flow, our earnings, creating a dividend program and investing the markets we believe we can win in. So that remains our strategy. Our design point is to, for the investments we make in the business, whether it be Red Oxygen, whether it be investing in faster growth markets, getting additional coverage, bringing more partners on board, more program spend, the design point remains getting to the market rate. We don't guide to that, but those are our design principles. And then thirdly, in terms of capital allocation strategy, there's no change to the strategy. We are -- we continued with our dividend program every quarter even though the Board meets and reviews the dividend. Paul and I think of the dividend program roughly as 20% of our cash flows, operating cash flows. And we'll continue to acquire. So no change on the capital allocation strategy.

And just on the valuation of deals as you look out right now, even the past, repeatedly you want to be a value buyer. What have you seen in terms of the valuations of targets you may have approaching? Are they in the ballpark of what you're be willing to pay or are they creeping up?

Yes, like I commented on the last call, and I have no change that we continue to be in -- a value buyer. We look for certain ranges, and we're going to continue to look in those ranges for value assets. So no change to our strategy.

One question for Paul. The special charges were expected to be $5 million to $6 million or a little bit below that. Can you give us an outlook over the next couple of quarters on that?

Yes. It would probably be -- I'm looking at about $3 million for the next quarter and maybe $1 million each in the following 2 quarters. So the remainder of the year right now is about $5 million.

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

Mark, can you comment on the level of sales turnover in the quarter? We saw a higher level than typical during the last September quarter. Wondering if it was more consistent with sort of lab [ph] this quarter, or if it was -- any difference in that regard?

Good question. No, I would say we're operating really back to historical norms. We haven't seen ourselves having high turnover coming into the new fiscal year at all. So I'd say we're operating quite within historic norms. We also rolled in the year with minimal changes to the field organization. So I'm quite pleased with our retention rates coming into the year.

And so on a year-over-year basis, we should still think about you guys being sort of 20% higher in terms of sales headcount than you were last year?

Roughly, yes.

Okay. Question for Paul. Paul, can you break out the contribution from ICCM and Cordys in the quarter?

Well, ICCM has very little revenue. And Cordys, we acquired middle of the month. So both were actually quite negligible. With don't break it out because it's not material and certainly, negligible in the license. And so -- and correspondingly any maintenance we pick up, there was a very small haircut, I think, about $0.5 million for the next year. Cordys, trailing revenues, about $30 million.

Okay, that's helpful. And just one last one for me. Mark, can you clarify the Professional Service line that was down year-over-year and quarter-on-quarter? Any dynamic there? Is that just some quarterly volatility in that number?

Yes. I think of -- I mean, we love our PS business and we get great value for it. In a lot of ways, it's a trailing indicator, right, to license. So if PS is going to be down, it's probably a trailing indicator. And even if licenses going -- was down -- is down, we're compensating by having a stronger margin performance to continue to drive earnings growth. So I -- think of it as a -- just a trailing indicator to license.

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

Mark, maybe can you talk a little bit just about the metrics you're thinking about and the board's thinking about in terms of measuring success for Red Oxygen when it launches. How are we going to determine when you've won or when we're there, and that's the first one?

Well, the customer adoption, competitive replacements, are certainly things in top of mind for me and the leadership team, as well as ultimately gaining new logos, new customers and license revenue. It's an important release for us. We've choreographed -- organized 1,000 engineers to deliver instead of a couple hundred modules, 7 suites of software, with deep integration, over 300 integration points. So I'd be looking towards competitive wins, customer wins, new logos and then ultimately, leading to license revenue.

So on that same topic again, just the last one for me would be what's the plans -- or maybe you can remind us, what the stance is towards sort of customer support or migration towards Red Oxygen and what the expectation would be in terms of when you think you want to move the base over?

Yes, fair enough. So as we get into Enterprise World, we'll certainly highlight what's part of customer maintenance fee and what's not. So we're going to have opportunities where some of these suites to not have just it as part of maintenance. So this will be part of our roll out when we get to Enterprise World on the pricing, as well as what's included in maintenance and what is not. So there will be opportunities both within the installed base and obviously to attract new logos and new customers. So pricing and packaging, all we'll release at Enterprise World.

Sorry, just have to clarify there. Actually, it wasn't so much about pricing. I just want to see what's the policy on end of life legacy products? What's sort of the 4-store, the push to migrate people more quickly? I should have been more clear.

No problem, I misunderstood the question. We typically support 2 releases back. So when Content Suite 10.5 goes GA, we'll support 2 releases back. And we've been on sort of a 2-year strategy, so customer is 5 years, 4 to 5 years behind would get an end-of-life notice, and then we'd have to upgrade. So we tend to support 2 releases back.

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

Just to follow up on the gross margin line. Paul, I think you mentioned on the call, early part of the call that cloud services was in 51% without the reversal, is that correct?

61. 61%.

61%.

Yes.

Okay, perfect. And then, Mark, you talked about how you're starting to see some demand in the quarter, but building the release of Red Oxygen, can that also create a drag for you in the current quarter as well, as people anticipate the general release?

It wasn't a lead contributor to the flat revenues. I'm sure there are some customers who see it and our pausing, but I wouldn't -- I don't think of it as a major contributor.

Okay. And then you expect Red Oxygen to be a positive impact in this fiscal third quarter and also in the fiscal fourth?

Yes, certainly. I certainly see it as a new product cycle for us in the second half of the year, for sure.

Okay. And then just on the pipeline of opportunities, you guys are chasing solid -- pretty healthy pipeline. Some of the software vendors that have missed in quarter as well have also talked about the same thing. Where is that pipeline coming from? And in terms of execution, obviously, we have some issues over the last 2 quarters. What gives you confidence you can, I guess, turn the ship around from an execution standpoint here?

Yes, fair enough. So pipeline is up -- feels healthy. The effects of the shutdown seem to have worn off and folks are back to business. I look around our GOs, and last quarter in the Americas, the revenue was down 2%. It was primarily PS, but we did greater margin, but license was up. And we're -- and I see execution sort of improving in the Americas. In EMEA, our business was up 5% last quarter with strong CS. And in APJ, although our business was down 11%, I sort of point to a deal that slipped that we've closed and brought that back in Japan roughly $1.6 million. So just as we saw sort of a pause across GOs in Q1, we're looking at the pipeline across our GOs right now in Q2. So I'm actually going to look to each of our GOs here contributing.

Okay, perfect. And last question for me before I pass the line. The government shutdown, is there any way you can give us some form of a metric to figure out what kind of an impact this had on you?

Nothing except, I don't mean to be a bit cheeky, but across the board, I mean, it really was for us an across-the-board pause coming into the last few weeks of the quarter.

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

Given the number of changes to your sales force and expand your reach in new geographies and channels over the last year, has the ramp-up of these new channels met your expectations?

Paul, thanks for the question. I think the short answer is nothing has changed our thesis on the opportunity in what I'll call our fast-growth markets or FGMs. But the time to revenue and the time to scale might be taking a little longer than expected. There's nothing that's changing our strategic thesis of India, Southeast Asia, Japan, Latin America, Middle East, Russia, Eastern Europe, South Africa, which we call our fast-growth markets. But time to revenue is probably taking a little longer than we'd like to see.

Okay. And then with Jonathan Hunter on board as your head of sales, do you anticipate any major changes to direct sales strategy, or do you expect to continue with the existing one?

No, right now, Jon and I believe that we have the sort of right structure in place. So we're certainly not envisaging any big changes to the organization.

Our next question comes from the line of Derrick Wood with Susquehanna International.

Great. This is Rakesh Kumar for Derrick Wood. So I had a question, last quarter you talked about execution issues in North America and the western U.S.. This quarter it's basically macro. I just wanted to understand how much has execution improved and how much is the weakness coming from macro in this quarter?

Yes, the flat revenues and up margin in EPS is primarily -- the flattish revenues are certainly driven by U.S. government shutdown. It had wide effects. Wide effects as we came at the end of the quarter. In the Americas, which I highlighted the West and Canada last call, license was up. License was up in the Americas. Not enough, but it was up. And all of Americas was down roughly 2%. PS for the most part is the trailing indicator for the business. So execution is improving in the Americas. We see that with license sort of up slightly year-over-year, and the flattish revenues certainly driven by the macro of the U.S. government.

And if I could just add one more. If you could talk about your SAP channel business. I mean, any color on revenue contribution from SAP relationship, any changes over there?

No changes. The relationship remains strategic. We remain close out in the field, and we'll continue to plan for field engagement, customer successes and explorations of the products. So strategic relationship remains important. Paul, anything on the percent of contribution?

No, it's been consistently -- we've talked about in last few quarters being over time between the 10% and 15% range consistent.

[Operator Instructions] Our next question comes from the line of Michael Nemeroff with Crédit Suisse. Michael J. Anderson - Crédit Suisse AG, Research Division: This is Mike Anderson on behalf of Michael. First, can you just comment on the competitive environment that you experienced in the quarter and maybe the win rates and the large deals that you did win?

So on a competitive side, really no change in the dynamic that I have highlighted in previous quarters. We tend to see IBM and Microsoft more so in our ECM seller; Adobe in CEM; Pega in BPM; j2 and Wesoft and Kofax in iX; and Autonomy over in the Discovery pillar. With the advent of Red Oxygen and strong integration and beginning to enable the developer with modern tools and much deeper integration, I'd expect our competitive ways to improve certainly against Microsoft, IBM. Addition of Cordys will certainly help us against Pega, and our new HTML5 interface should help us against Adobe. We don't publish win rates on big deals or sort of our medium-sized deals. No change to competitive environment than we've seen over the last couple of quarters before the advent of Red Oxygen. We're anticipating certainly a competitive advantage uptick for OpenText. Michael J. Anderson - Crédit Suisse AG, Research Division: Okay, that's helpful. And then with respect to partner-driven license revenue, it looks like you did grow a little bit year-over-year. Was that -- would you say that that's from SAP, driven by SAP or other partners that you have?

Yes, I mean, when we roll into Enterprise World, we have I think Monday. Monday is all dedicated to our channel and our partners. Our partner count is up in the quarter for sure. We've talked about 2 new big partners in the quarter, both ExactTarget and hybris. So we have a new leader who's running the channel for us. Lots of energy, lots of ideas. And our partner count is up, and we certainly announced 2 new partners last quarter hybris and ExactTarget. Michael J. Anderson - Crédit Suisse AG, Research Division: And then just one last one, and this is for Paul. Paul, can you just comment on the FX impact on revenue in the quarter, as well as where the support renewal rates fell in?

Yes, the only FX number that we give is the bottom line, so that was a positive $0.02 impact. And the renewal rates are staying very constant in the low 90s.

[Operator Instructions] And our next question comes from the line of Varun Choyah with CIBC World Markets.

Just one quick question on the acquisition strategy. Can you provide a bit more color onto the types of targets you could potentially look at, like is it going to be like complementary to your EIM strategy and maybe provide some color on that?

Sure, thanks for the question. As consistent with previous comments that we've made, we're going to continue to acquire. We look for assets that we can onboard to our operating model. And these are some of the usual filters for me and Paul. Third is we're quite happy with our EIM strategy. We're not looking to add new pillars to our strategy. And we continue to be more of a value buyer, and we have to see it passed to be able to onboard particular asset to our operating model. Those are, as usually, as much as we talked about on the strategy.

So would big data be like a new pillar or would that fall in the analytics bucket?

Our Discovery bucket is a little more oriented, I would say to applications and platforms. So big data is a big word, so hard for me to kind of answer that.

And our next question is from the line of Eyal Ofir with Clarus Securities.

Just a quick follow-up, I know you're going to through a big migration right now with the MS support Livelink 9.1. How's the migration going into CS10? And maybe give us a little bit more information on what customers are saying in terms of that migration path and what kind of -- what it's lead to in terms of either new customer wins or new engagement?

Yes, it's -- thank you for the question. I actually don't have the specific numbers from the kind of the little older version of 9.x, 9.1. What I can say is when I look at 10.5 Red Oxygen, Content Suite 10.5 there's significant capabilities. There's a new user interface. There's reports. There's a report writer. There's deployment options for on-premises or in the cloud for archive, new targets for archive, new workflow engine, and 10.5 is a destination release. So whether customer is on very old versions of 8.x, 9.x or earlier versions of 10.0, 10.1, 10.2 SP1, SP2, we're going to go out and be very aggressive to upgrade every one to 10.5 because it's the destination release. And with 10.5, you then can expand to Tempo Social, Tempo Note, Tempo Box and other integration. So I don't know the numbers for 9.1, but 10.5 is for sure a destination.

Got you. I imagine the whole premise here is that you'd be able to not only migrate them over in a reduced cost from also a support stance, but potentially also get them to upgrade the feature set and get a new license win on a different pillars within that software release?

I hope to upgrade them into our cloud as well, right? So that will be part of what we talk about at Enterprise World that instead of going on site and doing upgrade, we just install it for you and migrate your data.

Okay. I got you. So new pillars in the cloud versus just staying on premise.

Sure thing. Sure thing.

Our next question comes from the line of Scott Penner with TD Newcrest.

Just 2 follow-ups. Number one, Mark, can you just sort of remind us what application will be released on top of SAP HANA, and whether that -- and what the timeline is for that?

I believe we're already GA. So our Vendor Invoice Management, Employee File Management and our extended ECM, DAM and Document Presentment all support HANA today.

Okay. Second question is just the BPM assets that were in place for Cordys, are they -- is that still a growing business? Or did you really feel the need to go out and buy a whole new version?

Yes. I mean, the Metastorm, Global 360, ICCM and now Cordys. So what ICCM brings us, ICCM was a partner, primarily a service partner, who was very good at developing applications on top of MBPM or building apps on top of Metastorm. Cordys brings technology, a process orchestration layer, a developer tools and case management that work in the cloud. It's a multi-tenant cloud version versus Global 360 and Metastorm, which were on premise versions. So we wanted to get more expertise about writing apps, which we got with ICCM, and we want to take cloud platform, a path platform, that was multi-tenant and that's what Cordys is bringing us.

Our next question comes from the line of Michael Nemeroff with Crédit Suisse. Michael J. Anderson - Crédit Suisse AG, Research Division: Mike Anderson again. One more quick question for Paul. Can you comment -- based on the acquisitions in the past and you've done some acquisitions sometimes that affects your operating margin due to the expenses that are related to that. Can you quantify any impact that the recent acquisitions that you've done might have in fiscal '14?

Well, Mike, I'll make one reference to the beginning of the last fiscal year where we ended '12 in 27.3% operating margin. We onboarded $165 million of Easylink, which is in a low -- fairly low 20% margin. And at that time, we indicated to expect margins to be relatively flat because we're onboarding a sizable acquisition. As you know, we ended the year at 29.3%. So certainly, I would tell you that any acquisitions from an accretive -- from a margin accretion perspective have done at least, as well or better than we've anticipated. It speaks to the intelligent growth point that Mark has emphasized in the last 2 quarters is that we're successful on onboarding our acquisitions and achieving the margins. So I wouldn't point to any of them that have not done that.

And we have no additional questions at this time. I would like to turn the conference back to our speakers for any closing remarks.

Very good, thank you. Well, thank you, everyone, for joining today. It was an important call, discussing intelligent growth, Q1 results, Red Oxygen and our EIM strategy. I hope you'll join -- you'll be able to join me, Paul, the OpenText team, Greg, our customers, and William Shatner at Enterprise World in Orlando, Florida, November 17 through the 21st. Feel free to reach out to our Investor Relations team for more details. This concludes today's call.

Thank you. Ladies and gentlemen, this concludes the OpenText Corporation First Quarter Fiscal Year 2014 Results Conference Call. We thank you for your participation. You may now disconnect.