Oct 27, 2009
Executives
Greg Secord – Vice President, Investor Relations Paul McFeeters – Chief Financial Officer John Shackleton - President and Chief Executive Officer
Analysts
Scott Penner – TD Newcrest Tom Liston – Versant Partners Richard Tse – National Bank Financial Paul Steep – Scotia Capital Michael Abramsky – RBC Capital Markets Dushan Batrovic – Canaccord Adams Paul Lechem – CIBC World Markets Inc Gabriel Leung – Paradigm Capital Inc
Operator
Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Open Text Corporation First Quarter Fiscal 2010 Financial Results Conference Call.
(Operator Instructions). I’d like to remind everyone that this conference call is being recorded today October 27, 2009 at 5:00 PM Eastern Time.
I’ll now turn the conference over to Greg Secord, Vice President, Investor Relations. Please go ahead.
Greg Secord
Thank you. Hello everyone and thanks for joining us.
With me today are John Shackleton, our President and Chief Executive Officer and Paul McFeeters, our Chief Financial Officer. Before we begin I’d like to draw your attention to a PowerPoint slide that are posted in the Investor Relation Section of our website, outlining new business combination rules for accounting.
The length of this presentation is posted in the Q1 press release that we issued earlier today. I’d also like to remind the audience we are hosting an Analyst Day tomorrow at our Users Conference in Orlando, Florida.
This informal analyst event is integrated with the general conference agenda and a presentation materials from the main conference session will also be posted in the Investor Relations event section on our website. And now I’ll read the disclaimer.
During the course of this conference call, we may make projections or other forward-looking statements relating to the future performance of Open Text or its subsidiaries. These oral statements may contain forward-looking information and actual results could differ materially from a conclusion, forecast or projection in the forward-looking information.
Certain material factors or assumptions were applied when drawing the conclusions, while making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors or assumptions that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection as reflected in the forward-looking information are contained in the Open Text Form 10-K for the fiscal year ended June 30, 2009 and in our press release that was issued earlier today.
And with that, I'll turn the call over to Paul McFeeters. Paul?
Paul McFeeters
Thank you Greg, I’ll begin by reminding everyone that our financial results reflect the [stub] period of two months from the Vignette aquisition. Starting with the financial results for our first quarter and fiscal year 2010, total revenue was $211 million, up 16% compared to $182.6 million for the same period of last year.
License revenue was $47.3 million, down 6% compared to $50.1 million reported last year. Maintenance revenue was $122.6 million, up 26% compared to $98.4 million last year.
Maintenance revenue was reduced by $0.9 million as a result of purchase price adjustments related to the Vignette and Captaris aquisition. Services and other revenue was $40.1 million, up 19% compared to $34.1 million in the same period last year.
We reported first quarter adjusted net income of $32.8 million or $0.58 per share on diluted basis, up 16% compared to $28.2 million or $0.52 per share for the same period a year ago. Gross margin for the first quarter before amortization of acquired technology was 72.9% compared to 74.7% in the first quarter last year.
The decrease is primarily due to lower service margins from Vignette. The pretax adjusted operating margin before interest expense was 22.7% in the first quarter compared to 23.7% in the same quarter last year mainly due to the Vignette’s impact on the margin.
The tax rate for the quarter was 27%, reduced from 28% at year-end. Within special charges we recorded $9.5 million of restructuring charges and $1.4 million of aquisition related cost in connection with the Vignette aquisition.
Operating cash flow in the quarter was $4.5 million, compared to $24.8 million in the same period last year, the decrease was primarily due to Vignette connections increasing our DSO by five days or $12 million and restructuring cost of $10 million, the impact of these items would result in a normalized cash flow for the quarter of $27 million. Net income for the first quarter in accordance with the GAAP was $1.7 million or $0.03 per share on a diluted basis compared to $14.8 million or $0.28 per share on a diluted basis for the same period a year ago.
The decrease in GAAP income is primarily due to special charges of $18.6 million. There were approximately 56.5 million shares outstanding on a fully diluted basis for the quarter.
As in recent quarters foreign exchange movements had a minimal impact and reduced adjusted earnings by $0.01 per share. On the balance sheet at September 30, 2009 cash was $212 million compared to $276 million at the end of last year.
Accounts receivable was $135.6 million, up from $115 million at the end of our June quarter. Days Sales Outstanding was 58 days as of September 30 compared to 51 days for the previous quarter and 53 days at the end of Q1 of last year Deferred revenue was $217 million compared to $297.3 million as of June 30, 2009.
The changes in the balance sheet from June 30 to September 30 are primarily due to the acquisition of Vignette.
Now turning to the company's pre-tax adjusted operating margin model, we are confident in our plan and maintain expenses in the 14% to 15% range for development, 24% to 26% range for sales and marketing, 9% to 10% for G&A, and 2% for depreciation. Our annual operating net margin is projected to be in a range of 22% to 27%.
Now I will turn the call over to John.
John Shackleton
Additionally, license revenue in North America came in slightly below our expectations. On a positive note Europe exceeded their target for the quarter.
The core ECM business pipeline has grown stronger, being driven by compliance based on solutions in verticals like government, energy and financial services. As we wait for the (inaudible) business to return I believe we’ve more than enough in the pipeline to make up for last quarter shortfall throughout the rest of the year.
In Q1, North America is responsible for 51% of revenue, Europe 43%, with the remaining 6% coming from Asia-Pac. We saw strength in Europe driven by the government sector.
In Q1, we saw license revenue broken down by vertical, at [45%] from high-tech manufacturing, 15% for financial services, 24% for government and 11% for energy. Of this license revenue approximated 30% came from new customers and 70% from our installed base.
With taking a close to look at the transactions in the quarter we had six transactions over $0.5 million an additional three transactions over a $1 million with notable wins in energy and the European government sectors. The average transaction size was approximately $320,000, which is about the same as in prior quarters.
Within group world leading gas and engineering company purchased additional license of Open Text document access and archiving for SAP. With British government also signed a number of significant transactions in the quarter.
From a sales operation standpoint, we closed the quarter with a combined sales force of over 345 quota carrying sales execs. License revenues from partners and resellers was approximately 42% in the quarter, SAP continues to be our largest partner with Oracle and Microsoft continuing to report increasing partner demand for solutions in archiving, records management and compliance.
Speaking of SAP in the quarter we announced another expansion of our reseller agreement with SAP. They will now resell Open Text Extended ECM for SAP.
SAP was already reselling Open Text Document Access and archiving and invoice management solutions. On the product side Open Text will release Vignette's Content Management Version 8 and the Vignette Portal Version 8 in the second half of 2009.
In the coming months, Open Text will launch an offering that combined key strength of Web solutions with the Vignette Content Management platform making it the clear market and technology leader for Web Content Management Solution. We also announced the latest new release of Open Text Email Management for Microsoft Exchange, a full-featured e-mail management solution that helps companies reduce the e-mail storage requirements and enhances their ability to run to respond to e-discovery requests.
Also in the quarter we announced that Open Text is positioned in the leader's quadrant of Gartner's 2009 Magic Quadrant for Web Content Management, based on an evaluation of the company’s ability to execute on its completeness of vision. We also received the highest rating possible in their MarketScope for records management.
On the event side, we are hosting our Content World Conference in Florida this week. To date we have over 12,000 users and partners attending the event.
As Greg mentioned, we are holding an Analyst Day onsite tomorrow on Wednesday October the 28. At the conference we’ll present a detailed product roadmap and outline of our product integrations strategies.
The PowerPoint materials that accompany these presentations will be made available in the Investor Relations section of our website on Wednesday afternoon. We got into Vignette acquisition, everything is on track and looks we are very pleased with the results to date.
The combined product line provides users with the full set of features but easy-to-use, fast-to-deploy Web publishing applications to a full integrated enterprise class e-business platform for large scale deployment. Turning now to the outlook for FY10, industry analyst continue to tell us that IT spend will be anywhere from negative 3% to negative 10%.
And we still believe we can lead the ECM market in Europe, which is currently in the low to [mid-single] digit range. Taking a look at fiscal 2010 I feel comfortable that we'll see license revenue growing in this range from our organic business.
As Paul outlined last quarter, we expect Vignette license revenue to decline 30% to 40% and the customer support revenues to decline slightly this year. Taking this into account we still expect the overall revenue in fiscal 2010 to be inline with current FirstCall consensus estimate.
I should also add that as a combined company our revenue seasonality trends in the coming year should be similar to the seasonality we experienced in fiscal 2009. From a profitability standpoint, we are on model with our 22% to 27% adjusted operating margin model and we're comfortable with current FirstClass consensus EPS estimates for fiscal 2010.
Now I’d like to open the call for questions.
Question-and-Answer section
Operator
Thank you ladies and gentlemen we will now conduct a question-and-answer session. (Operator Instructions).
Our first question comes from Scott Penner with TD Newcrest. Go ahead.
Scott Penner – TD Newcrest
Hi, can you hear me okay?
John Shackleton
Yes we can.
Scott Penner – TD Newcrest
Great. Just on the license revenue first of all, I think its fair to say was below what would most people were expecting, you said soft relative to your own expectations.
I know you don’t normally go to this level of detail, but last quarter you had expressed some concern with the state of the pipeline in the Vignette business when you where in the midst of acquiring it, do that revenue come in line with that 30 to 40% attrition or was it basically below that for the quarter.
John Shackleton
No, actually on the Vignette side we were pretty much right where we expected it to be most of the shortfall was around our WCM again with customers kind of holding off, waiting to see what the new roadmap would like, as well as we did see a little bit of softness in North America actually mainly U.S.
Scott Penner – TD Newcrest
And do you have any, in taking to your customers, do you have the expectations that once this roadmap is unveiled at the User Conference and gets discussed, that that backlog will clear up or any sense of how long it’s going to be, until people are comfortable.
John Shackleton
Scott Penner – TD Newcrest
Okay and that’s helpful. But, Paul, on the cash flow statement there is a couple of items that I just want to be clear of.
I think the release, the $4.4 million release of unrealized gain?
Paul McFeeters
Yes
Scott Penner – TD Newcrest
Where is the income item on the income statement?
Paul McFeeters
That’s grouped with other income so it's below our adjusted earnings and I don’t include that in our adjusted earnings.
Scott Penner – TD Newcrest
Okay and the unrealized gain on the financial instrument that is in reference to the collar?
Paul McFeeters
It is actually that’s a reference to our, no our collar is actually interest expense. We do some forward Canadian dollar hedging and so that’s actually gain on those forward hedges.
It's also in other income.
Scott Penner - TD Newcrest
Okay.
Paul McFeeters
The market-to-market piece was $1 million and if netted in that was a gain. It’s netted in the interest expense volume.
Scott Penner - TD Newcrest
Okay. Fair enough.
And just John lastly anymore details on the, you talked about the European government deal just what exactly they are rolling out and how much for a reference customers this could be?
Paul McFeeters
It’s the British governments. It is a very good reference account unfortunately it’s an area that we cant talk about.
Scott Penner - TD Newcrest
Okay. Thanks.
Operator
Our next question comes from Tom Liston with Versant Partners. Please go ahead.
Tom Liston – Versant Partners
Hi. Thank you and good afternoon.
John just looking at SAP extended ECM could you give us some details or little bit sparse I guess right now, at least what we've come across. Can you tell us a little bit more about what that involved.
Is it similar together agreements in the past with SAP and is there anything specific in terms of geographies and such that maybe [French] channel conflict and the like?
John Shackleton
No. Actually, Tom, it is on a global basis for them.
We are working very closely together to make sure there isn’t any channel conflict. And which we think it will not be and it allows them to sell more of the traditional document management, records management as well as the connection to SAP.
And so we've been working probably six months on this making sure that the there isn’t channel conflict. Doing joint account planning etc and we feel very comfortable that this will be significant for both parties.
Tom Liston – Versant Partners
Okay. And sorry to make you go through it again Paul, but in my mind there’s a few things missing from the cash flow between the four and a half-ish or whatever it was in the quarter to the 27 that you got to obviously the Vignette piece.
But Vignette they are I think was only in the $20 million range. Can you kind walk through on how you get the 27 normalized type number?
Paul McFeeters
Sure. I’ll start with the DSO, Tom, the effect although you point out the receivables but it is five days, so Vignette DSO is much higher than Open Text.
Open Text [tenure] would have been 53 because with Vignette DSO included taken at the 58 those five days accounts for $12 million. That’s just timing.
We’ll get the DSO's in line as we have in previous acquisitions over the next two quarters. So the effect those five days is 12 and then [impaired] as the cash outflow of the $18 million specialty charges that we show in their P&L, so they are one-time charges.
Tom Liston – Versant Partners
And the rest of the special charges are they of the 18.6 are they related to Vignette as well as or are some of those Captaris and other things that you are doing?
John Shackleton
[Audio Disturbance] related to Vignette and Open Text together as, now with their combined restructuring charge and a little bit yet from Captaris, Yes.
Tom Liston – Versant Partners
Perfect, thanks.
John Shackleton
Thanks Tom.
Operator
Our next question comes from the Richard Tse with National Bank Financial. Please go ahead.
Richard Tse – National Bank Financial
Hey John can you hear me?
John Shackleton
Sorry Richard, you are cutting out, could you say it again.
Richard Tse – National Bank Financial
Yeah can you hear me.
John Shackleton
I can hear you now, yeah.
Richard Tse – National Bank Financial
Okay in terms of Scott’s question earlier this is going to involve the sun setting of existing WCM products that can talk about over the next few days or in terms of the road map can you give us bit a color at least for the next half?
John Shackleton
Actually I think I mentioned last quarter. Basically the RedDOT products, which was the existing product is very user friendly, easy-to-use install and easy-to-use for non-technical people.
One of the things we will be doing is using the front end of that to help in the Vignette user front end of that product. The Vignette product is a very robust strong e-commerce product, many small medium size companies would never need the functionality of that.
So we will continue to sell both pieces of the product.
Richard Tse – National Bank Financial
Okay. And then when you talked about the you are comfortable with FirstCall numbers and then you sort of look at the pick up potentially from the WCM side of the business, I am assuming that in your numbers or that will be serve over and above here?
John Shackleton
That’s in the numbers.
Richard Tse – National Bank Financial
Okay. So you are assuming [that no any other] pick up in Q3?
John Shackleton
Right. Q3 and Q4.
Richard Tse – National Bank Financial
Right. And in terms of the partnership, there is been some chatter here that, you are looking to sort of replicate what you are doing with SAP and the Oracle side.
Can you give us some, maybe commentary on that side?
John Shackleton
On the Oracle side, we are seeing, we just had the Oracle rollout in San Francisco. We are seeing some very positive signs.
As you know may know we’ve just hired a one of the senior members of the Oracle ECM team to actually head up our Oracle team and so we were very happy to see that that relationship is picking up as well.
Richard Tse – National Bank Financial
Okay. And just one final on, with respect to the government of Ontario win recently.
When can we expect to see some revenues pickup from that side?
John Shackleton
My guess would be probably Q3 and Q4 and then, kind of ongoing as they start deploying from thereon.
Richard Tse – National Bank Financial
Right, okay. Great, thank you.
John Shackleton
Okay Richard.
Operator
Our next question comes from Paul Steep with Scotia Capital. Please go ahead.
Paul Steep – Scotia Capital
Hey guys, really hard to hear you with the static I'll make it fast. The first one is just, John if I heard you right here on the maintenance support it sounded like you would expected just a small hit on Vignette.
That sounds different than prior deals where you have had a bigger impact and it also sort of goes to the question to Paul I thought I heard a $9 million purchase price adjustment in the quarter but I want to make sure that’s right too.
Paul McFeeters
It’s Paul. Actually for the maintenance write-down, we will call it, it was actually 0.9, so just $100 million.
And to your former question, yes. In the valuation of Vignette in this case the maintenance write-down is not as high as what you might have seen in previous acquisitions such as Captaris, such as Hummingbird.
It has more to do with how the valuation of intangibles was towards the IP. So we didn’t have anything to write down the anticipated we talk about what the acquisition rate.
And to that point again but $1 million rate down is poor and frankly only about full write down Paul Steep.
Paul Steep – Scotia Capital
Sorry. 400,000 in the next three?
You literally broke up on the last bit there?
John Shackleton
I’m sorry, we are different side, I apologize to...
Paul Steep – Scotia Capital
No problem.
John Shackleton
No, for the balance of the year, over the next three quarters about an additional $1 million.
Paul Steep – Scotia Capital
Okay, perfect. All right.
So that covers that one. The last one for you and then I will move in is just around the tax pools for Vignette.
Those are pretty substantive is there been any sort of resolution on that is to how you might be able the value those and bring them on may be as a tax asset or utilize those?
John Shackleton
So we have not finished that part of our valuation which we identified. So at this time this quarter Q2 will have completed our evaluation of those [types of] assets.
I would anticipate that we will certainly pick up a substantial asset for those operating losses.
Paul Steep – Scotia Capital
Okay. Great.
Thanks guys.
John Shackleton
Welcome.
Operator
Our next question comes form Mike Abramsky with RBC Capital Markets. Please go ahead.
Michael Abramsky – RBC Capital Markets
Yes. Thanks very much again I apologize as well because I couldn’t really hear much on the line.
John what give you confidence to resume revenue guidance now, is it other macro issues or specific issues and what could you specifically give us some sense of what is the risk given that now sort of been a couple of quarters in a row that you have seen some deal slow down in WCM that there the pick up could be pushed out of it.
John Shackleton
Yeah, I’m sorry Mike. Some of that cut out.
We apologize We're in a hotel of the used there must be something wrong with the speaker line, but basically from what I think you said was the what’s gives me confidence in the pipeline. We are seeing significant build up in the pipeline both in Europe and in North America and in Canada.
And so we feel that while the WCM is a little bigger drop-off than we expected when we are planning the new roadmap in Vignette and obviously we think that will pick in Q3 as we said. We see a healthy pipeline and while we are not expecting significant improvements in the economy at a macro level.
We are seeing the IT budgets where they’ve been cut and cut to a point, but we are still seeing that the few projects that are left due include ECM and they are beginning to rollout some of these projects. Some of them beginning clearly in the New Year.
Paul Steep – Scotia Capital
Okay.
John Shackleton
You cut out a little bit. Did that answer all of your questions?
Paul Steep – Scotia Capital
Yeah, the other question was what the risk was, can you hear me?
John Shackleton
Yes I can.
Paul Steep – Scotia Capital
What the risk was the expected pick up in WCM coming being delayed?
John Shackleton
I think even if it’s delayed we feel comfortable meetning the street expectations with other products.
Paul Steep – Scotia Capital
Okay. So you feel you’ve got good coverage on your outlook?
John Shackleton
That’s right.
Paul Steep – Scotia Capital
Okay. And your, looks like, I’d again, perhaps this question has been asked.
I apologize just couldn’t hear, but your G&A was a little bit higher expected it was about 10% of revenue versus 9.4% in ’09. Can you give us an indication was that near-term Vignette related or how do we think about the trend going forward.
And I know you did mention your business model earlier, but I just couldn’t hear everything.
Paul McFeeters
Yes, Mike. It’s Paul, it is absolutely near-term Vignette related.
I mean we have in the G&A for back off usually takes about six months to integrate, so for a period of time you will have really a kind of additional G&A line so you think of that 100% is just short-term Vignette related.
Paul Steep – Scotia Capital
So are you assuming that that [GM] would return to your normal business model levels in order to achieve the Street EPS guidance?
Paul McFeeters
Yes we are, that’s great assumption.
Paul Steep – Scotia Capital
Okay. Thanks.
John Shackleton
Thank you, Mike.
Operator
Our next question comes from Dushan Batrovic with Canaccord Adams. Please go ahead.
Dushan Batrovic – Canaccord Adams
Hi, thank you. Is it fair to assume with the commentary that the Vignette side is looking to pick up in Q3, Q4 with the release of the new products.
And it sounds like from a macro spending standpoint again seems to be a little more back end weighted. I know you also said seasonality is this going to be typical, but could we see a bit of a weaker Q2 than just based on the commentary around a more of a resurgence in the second half?
John Shackleton
The 2Q today looks pretty healthy Dushan and by the way it’s on the pickup. It’s not so much the Vignette.
It’s the RedDot folks are waiting to see what are the implications of Vignette. So it’s not so much the Vignette pickup later on although we do expect to see some of that.
The drop off in our numbers for the last two quarters have been basically for customers waiting to see what's going to happen in the RedDot side.
Dushan Batrovic – Canaccord Capital
Okay. And so you didn’t say that that so far Q2 was shaping up to be reasonable based on historic standards?
John Shackleton
Yep.
Dushan Batrovic – Canaccord Capital
On geography side, it seems like on a quarterly basis we haven’t seen much of a trend between Europe and the U.S. Is there anything that we can say that you're seeing longer-term that would suggest one region is starting to respond, I guess the recession and the spending rebounded differently from another region or is it pretty typical based on what you have seen in the past?
John Shackleton
Its actually, its seems it goes in ways what we saw was the first U.S. then U.K.
then Germany now its back to the U.S. and actually little bit in Asia Pac we saw this past quarter was down a little bit.
But we see them coming back again this quarter. So it’s a little bit each time there is somebody [missing].
Luckily we're fairly evenly spread.
Dushan Batrovic – Canaccord Capital
Okay. Thank you.
John Shackleton
And again even though the U.S. was tough this quarter it seems that though it’s picking up a little bit.
Dushan Batrovic – Canaccord Capital
Great. Thank you.
John Shackleton
Okay.
Operator
Our next question comes from Scott Penner with TD Newcrest. Go ahead.
Scott Penner
Well, thanks. Just a follow up John, I think you'd mentioned the releases on Vignette I think you said V8 of the Content management and Version 8 of the portal in the second half of what was it this fiscal year?
TD Newcrest
Well, thanks. Just a follow up John, I think you'd mentioned the releases on Vignette I think you said V8 of the Content management and Version 8 of the portal in the second half of what was it this fiscal year?
John Shackleton
Fiscal year, so right we expected in probably February, March timeframe I think.
Scott Penner
Okay. And just to be clear on the strategy here.
I mean you’d mentioned and you've talked about some problems that Vignette customers were having with previous releases and how that was starting to get a little bit stabilized now?
TD Newcrest
Okay. And just to be clear on the strategy here.
I mean you’d mentioned and you've talked about some problems that Vignette customers were having with previous releases and how that was starting to get a little bit stabilized now?
John Shackleton
Right.
Scott Penner – TD Newcrest
Now you have the new release coming out. I can recall with Hummingbird, the strategy was to go in and basically fix up the most recent of the old releases before moving people, is this similar or is this a different strategy as trying to get people upgrade.
John Shackleton
Right. Slightly different Scott in that Vignette there is 7.7 I believe had stabilized and effected most of the problems, there were a couple of little clean ups, but in general it had stabilized.
And so getting people to that 7.7 was the key goal and we are obviously in the process of doing that. So the 10 will actually be new functionality, new features that many of the customers have been looking forward for quite a while.
But the stability is there in the existing product.
Scott Penner – TD Newcrest
Sorry, 10 you mean Version 8.
John Shackleton
Sorry, Version 8. Yes.
Scott Penner – TD Newcrest
Okay. So is it a costless migration for Version 5 and 6 customers to move either to 7.7 or straight to 8?
John Shackleton
They did incur some costs and we have been trying to minimize that and streamline that so it wouldn’t be as expensive as it had been.
Scott Penner – TD Newcrest
Okay. That’s all.
Thank you.
John Shackleton
Okay, Scott.
Operator
Our next question come from Paul Lechem with CIBC. Please go ahead.
Paul Lechem – CIBC World Markets Inc
Thank you, good evening. Just on the restructuring activities around and yet I was wondering can you give us some further details in terms of when you expect to record further charges and the outlay of cashes associated with them.
John Shackleton
Paul the additional charges going through probably the next two quarters will be of a similar size as you know we have reported between [June] on our 8-K and this is the first quarter that we have started to put those charges in. Correspondingly the cash about half of the restructuring charges were paid [out of] cash this quarter.
Expect the continuing cash outflow would be similar level next quarter and then start to taper off Q3, Q4.
Paul Lechem – CIBC World Markets Inc
Okay. Sorry the first part you said the charges you expect to record similar charges to this to Q1 in the next quarter?
John Shackleton
Yes. That’s correct.
Paul Lechem – CIBC World Markets Inc
Okay.
Paul McFeeters
We charged just under half of what we said in 8-K (Audio Disturbance) our overall charges would be for the Vignette Open Text restructuring. So the next would be in Q2 and then taper off Q3, Q4.
Paul Lechem – CIBC World Markets Inc
Okay. In terms of the workforce reductions where are you at in that activity and when do you expect to be completed by?
John Shackleton
We are about 50% done. We would expect the rest to be done certainly before the end of the year.
Paul Lechem – CIBC World Markets Inc
Okay. So when do you hope to be at the $40 million annual cost savings run rate.
John Shackleton
That would be exciting fiscal 2010.
Paul Lechem – CIBC World Markets Inc
Okay. Perfect.
And on the sales force I believe John you mentioned you were at 345 reps.
John Shackleton
You’re right.
Paul Lechem – CIBC World Markets Inc
Versus 269, if my notes are correct at the end of last quarter?
John Shackleton
That sounds about right.
Paul Lechem – CIBC World Markets Inc
Is that I mean it sounds like a big delta in terms of the number of reps, is there something you expect to do on the sales force side, where would you expect to be? Is there still work to be done in terms of reworking the sales force?
John Shackleton
That’s right. These are the certain areas that we will be looking out for that.
Paul Lechem – CIBC World Markets Inc
Okay. On the SAP agreement, the latest expanded agreement when would you expect to start to see actual benefits from that, when would you expect to see a revenue pick up from that agreement?
John Shackleton
As you know this quarter is their Q4. So obviously that’s usually a healthy quarter for us anyway but I would certainly see it picking up that Q1 is usually kind of less, one of the their weaker quarters but I certainly think their Q2 or Q4 we should certainly start seeing the benefits from that.
Paul Lechem – CIBC World Markets Inc
Is that sales force fully trained now or is that ongoing?
John Shackleton
It’s ongoing but they have been trained for the past two years. They’re actually doing very well.
Paul Lechem – CIBC World Markets Inc
Okay. And lastly just on the your comments on your Web Content Management you haven’t given out any granularity in terms of product breakdown but I’m just trying to get a sense, well not always, for the last several years you’ve talked about how email archiving, record management has been the main state of business and that’s only the driver.
And it seems that from your comments now the Web Content Management is actually quite a significant part of the business. Can you give us any sense of magnitude of Web Content Management versus that of the core document management, record management, email archiving that kind of thing.
John Shackleton
I think what you are beginning to see in particularly and in fact, I don't know, Paul, if you down here at the show, if you see our roadmap we are beginning to see Web 2.0, 3.0 really begin to pick up social computing, mobile computing is a great interest with our customers and so we do see this is an area that will pick up significantly in the coming year.
Paul Lechem – CIBC World Markets Inc
So is Web Content Management now is a growing part of your business or how should we think about in terms of magnitude of the business?
John Shackleton
Over the last two quarters, it has not been. It’s up until we announced that been yet, it had been a growing part of our business in fact a fast growing part and then with the Vignette announcement it slowed down for the last two quarters we do see it picking, we expect it to pick up certainly in the Q3, Q4 and will become an important piece of our business.
Paul Lechem – CIBC World Markets Inc
How would your license sales in your core ECM business? How would that have been in the quarter with that will been down also in the magnitude of the 6% number or was that actually a more stable business in the quarter?
John Shackleton
It was down a little bit in North America, (Audio Disturbance) fine in Europe, down a little bit in Australia and Asia-Pac a little bit.
Paul Lechem – CIBC World Markets Inc
Okay. All right.
Thanks that’s it from me
John Shackleton
Thanks, Paul.
Operator
Our next question comes from Gabriel Leung with Paradigm Capital. Please go ahead.
John Shackleton
Okay.
Gabriel Leung – Paradigm Capital Inc
Thanks just two quick housekeeping questions for you, Paul. First on the tax rate, do you still expect that to sort of end the year around 26%?
Paul McFeeters
Yes as I guided last quarter, I think this year you’ll see it in the 26, 27. As you know, we put it at 27.
So I would think for by the end of the year, we will be seeing 26.
Gabriel Leung – Paradigm Capital Inc
And secondly, just can you talk about how much of the $40 million to $50 million in cost savings you’ve realized thus far?
Paul McFeeters
For this quarter, (cost) will be minimal. There will be probably under $3 million for this quarter.
Again, a lot of the restructuring we just acquired Vignette within the kind of the first, Vignette's only (technical difficulty) period of two months, as I mentioned, so most of the actions that we took only happened in the last two months of the quarter. So the savings while minimal this quarter will start to go through the next three quarters and I said the savings should be in place on exit Q4.
Gabriel Leung – Paradigm Capital Inc
Okay. And lastly John can you talk about how the, I guess there was some management transition or restructuring after John Wilkinson departed last quarter.
How has that worked out for the company thus far?
John Shackleton
As I think I mentioned last time, John had actually put the new structure in place about a year previously. So the three regional managers, a manager for Europe, a manager for North America, a manager for Asia-Pac are general managers that have not only sales but support professional services and support reporting into them.
The feedback from our customers has been very positive and I'm pretty happy with the whole organization.
Gabriel Leung – Paradigm Capital Inc
So you wouldn’t say any of the other recent license shortfalls related to some of the management transitions that you had?
Paul McFeeters
Certainly not on management transition, no.
Gabriel Leung – Paradigm Capital Inc
All right thanks guys.
Paul McFeeters
Thank you.
John Shackleton
Okay. Thanks you guys.
So let's wrap it up at this point. Thank you for your questions.
Just to highlight on Q1 we met our revenue in profit goals but fell a little short on our license goals. We remain positive for the outlook for 2010.
The integration with Vignette is on track and doing well. Our partner program continues to support our alignment with SAP, Oracle, Microsoft and we’re still focusing on solutions that integrate with these strategic partners.
With that we'll conclude the call for today. Thanks everyone for participating and for your questions.
Operator
Ladies and Gentlemen this concludes the conference call for today. Thank you for participating.
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