Open Text Corp. - Analyst/Investor Day

Open Text Corporation (OTEX)

September 06, 2012 9:00 am ET


Greg Secord - Vice-President of Investor Relations

Mark J. Barrenechea - Chief Executive Officer, President and Director

Gregory W. Corgan - Executive Vice President of Worldwide Field Operations

Muhi S. Majzoub - Senior Vice President of Engineering

Paul J. McFeeters - Chief Financial Officer and Chief Administrative Officer


Greg Secord

Thank you for joining us. Today's investor briefing here at the New York Palace Hotel. In today's investor briefing, we'll review formal presentations from our executives, followed by on-site question-and-answer session. And just as a reminder, this event is being webcast for those that can't attend in person. And all presentation materials are available at the Investor Relations section of our website, where the Investor Events section is. The webcast for those on the -- dialed in or listening on the Web will be approximately 3 hours. Also just as an FYI, we have posted a summary table on our website highlighting OpenText's historically trended financial metrics.

I'm going to move ahead for a sec here. Pleased to announce in the coming weeks, OpenText will be presenting at several investor conferences, including the Deutsche Bank Technology Conference next week in Las Vegas. We'll also be having investor/analyst program on November 14 at our Annual Users' Conference in Orlando, Florida. We'll be at the Credit Suisse Annual Technology Conference on November 27 in Arizona. And we'll be at Raymond James Institutional Investors Conference next year in March in Orlando, Florida.

Details of these events and all other events are available on the website. So just moving back, before I move forward with today's program, I'll read our Safe Harbor statement. Please note that during the course of this meeting, 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 a conclusion, forecast or projection in the forward-looking statements made today. Certain material factors or assumptions were applied in drawing any such conclusion or 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 material factors or assumptions that were applied in drawing a conclusion while making a forecast or projection as reflected in the forward-looking information, as well as the risk factors that may affect the future performance of and results of OpenText are contained in OpenText Form 10-K, 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 meeting today will include a discussion of certain non-GAAP financial measures. Reconciliations of all non-GAAP financial measures and their most directly comparable GAAP measures have been included in our fourth quarter and fiscal year 2012 press release, which may be found on our website as well.

So thank you. And with that, I'll hand the meeting over to Mark Barrenechea.

Mark J. Barrenechea

Good morning. And welcome, everyone. Let me just start with today's agenda. I'm going to kick off the morning speaking about the company and our direction and vision for Enterprise Information Management. We'll then hand the presentation over to Greg, Greg Corgan, who's going to speak about our field operations and sales organization. Muhi Majzoub, who's here, will then go through our product roadmap. And I think you're going to see a part of the company that you haven't seen before. So I'm quite excited about what's in Muhi's content, as well as Greg's, of course. And then Paul will -- Paul McFeeters, our Chief Financial Officer and Chief Administrative Officer, will go through our financials and our target model. I'll come back and wrap up the day. Then I'm going to open it up for Q&A. And then we're hosting a lunch after our prepared remarks and Q&A and hope you all can join us for that. So that is our agenda for today.

And what you'll hear from us, what you'll hear from the team, you're going to hear the expanded market opportunity around Enterprise Information Management. And this is a market, where from enterprise content management, roughly a $5 billion market. EIM is growing to a $19 billion market by 2016 at a 10% CAGR between here and 2016. What you'll hear today from the management team is our growth plans: our growth plans for revenues, our growth plans for license, our growth plans for earnings. Revenue, license and earnings. You'll hear from the team, you'll see from the team. We have a few other members here in the audience that I'll introduce when we get to that point in time. We're going to go through our innovation strategy and our 2013 fiscal model. So these are the things you'll hear from us today in our presentation.

I'm going to start with consistency and growth. Consistency and growth. When we look back over the last 6 years, 6 fiscal years, we have doubled our revenue and 3x our earnings, doubled our revenues and 3x our adjusted earnings over 6 years. We've taken the company -- the company has grown from $596 million to $1.2 billion in fiscal year '12. We've gone from generating $1.48 in adjusted EPS to $4.60 last fiscal year. This is a fantastic baseline for us to build on for the next decade within OpenText.

So I want to start with consistency and growth. Over a 6-year period, we've 2x-ed our revenue and near 3x our adjusted earnings over the previous 6 years, and nothing is changing in our approach to leading the company. On top of that, we've applied $2 billion in capital and acquisitions over the last decade. We've put $2 billion of capital to work, most recently with EasyLink, EasyLink Services. EasyLink will add a fourth revenue line to the company in fiscal '13. It will add a Cloud Services revenue line, where obviously we have license today. Our maintenance business, our Professional Services business will be adding a Cloud Services revenue line here in fiscal '13, and that's our most recent.

Global 360 and Metastorm, most of you are familiar with, I'm sure, really built out our BPM category. Nstein is sort of an anchor offering within our Discovery product line. IXOS, certainly within our ECM category. Hummingbird as well as Captaris, with our Information Exchange category. Vignette within our Customer Experience Management category. And StreamServe, also within our CEM category.

And I want to start with consistency and growth as well as acquisitions because this really leads me to sort of my observations of the business prior to joining and my day 1 observations of the business and my updated sense of priorities, 9 months in. It's been 9 months since I've been at OpenText. When I think of my day 1 observations in our addressable market, the company was very focused on enterprise content management. A fantastic market, it's our heritage, it's our foundation. It's not unlike in the ERP space, where financials is sort of the anchor category of ERP. But we've moved -- we've expanded our aperture, and then expanded our view of the market. Our customers were asking us to expand that aperture from ECM to Enterprise Information Management. $5 billion TAM in 2012 to a $19 billion TAM in 2016.

Again, a day 1 observation of OpenText. Growth and consistency, strong earnings, revenues, cash flows, great CAGRs over that period of time. This remains an absolute priority. As we set out to grow organic license faster than we have done historically, we are not going to do that at sacrificing this great growth and consistency and financial platform that we've had within the business.

Another day 1 observation, moving on to a go-forward priority, is that our organic license growth has been below market rates. We set out on a track to be at or above market rates for our organic license. Number one lever for the company is to grow organically our license at or above market rates. And you'll hear from us today how we intend to set out to go do that. We're clearly a proven acquirer, again, a day 1 observation of applying $2 billion in capital over that decade, over the last 10 years. We will continue to acquire. It remains a priority for the company as we look at each of our categories to continue to build scale in the categories of scale in the company.

Innovation, day 1 priority. I'd say a bit siloed and a bit incremental, all right? And it is more of a critique versus a criticism that I'd say we looked a bit more within each of our categories and a bit more in incrementalism and capabilities. So I think you'll hear today from Muhi that we're looking at a bit more of an integrated strategy and a bit more strategic approach to driving forward our product category.

And again, day 1 observations, we were structured in what I call the general management/business unit model. And in April, we transitioned to the company to a functional model. And that functional model is where our functional owners own each of the functions. Our geographic leaders in each of our big geos, EMEA, America, APJ, were responsible for CS, they were responsible for PS, they were responsible for sales operations, they're responsible for field marketing, and they're also responsible for license. We felt that, that wasn't quite the structure to really get organic license growth moving, so we transitioned that to a functional model where we have 1 leader for worldwide CS. He's here with us today, James McGourlay. James has 15 years of experience at OpenText, and is leading worldwide CS for us. That's our maintenance business as well as tech support. We consolidated our Professional Services business under 1 leader, Walter Köhler, who's now leading worldwide PS. We consolidated all our marketing functions under our marketing lead, James Latham. And we set up a traditional enterprise selling structure with a capstone of bringing Greg Corgan on board to lead field operations. So this is one of the larger changes we've made in April, and we enter our fiscal '13 executing against that model.

So I wanted to start with growth and consistency in applying $2 billion of capital, building an incredible baseline for the business as we look to grow our licenses faster within the market and the transition to the functional model. With that, this has created the expanded executive team here at OpenText. I think most folks know Paul. And Paul will be up here speaking in a few moments. Greg will be speaking after myself. Muhi Majzoub, leading engineering; James McGourlay, leading customers service. We have Gordon. Gordon, if you want to raise your hand, you're not speaking today, our Chief Legal Officer. James Latham, our CMO; Steve Hunt, our CIO; and Manny Sousa, leading human resources. I am delighted with our executive team. I'm really pleased with the team that we've put in place. It's a world-class team, it's a team that has incredible experiences in large, global, complex enterprise software businesses. So I'm real delighted to have the team brought together. We also have 2 invited guests today. I'd like to invite them. We have Kate Stevenson, member of the Board of Directors at OpenText; and Debbie Weinstein, member of the board at OpenText as well here. So Kate and Deb, welcome.

Paul and I announced fiscal '12 just a few weeks ago, I guess, it's September already. And it was -- the team delivered a solid fiscal '12. Record performance in revenue, record performance in profit, record performance in earnings per share and record performance in non-GAAP operating cash flow. $1.2 billion in revenue, $293 million in license, $287 million in non-GAAP operating cash flow, $270 million in non-GAAP net income, $4.60 adjusted earnings per share. So very solid, the new team delivered a very solid fiscal '12.

We've also built a global business, and we wanted to highlight today some of our major locations around the world, including New York City. So we think of our business in 3 large geographies: the Americas, EMEA and Asia Pacific. In fiscal '12, FY '12 revenues in the Americas was $635 million; year-over-year growth, 16%; and percent of business, roughly 53% in the Americas. Our worldwide headquarters is in Waterloo, Ontario, which I'm based out of. Operations at Richmond Hill, Ontario, as well as Ottawa. We have a large presence here in Battery Park South in New York City; D.C.; Atlanta, Georgia, where Greg is based out of and where EasyLink headquarters was; Austin, Texas; Tucson, Arizona; San Francisco; and Bellevue, Washington. Those are our main presences in North America. And we run Latin America out of São Paulo.

EMEA, $474 million in fiscal year '12. 13% growth year-over-year, roughly 40% of our business. We lead EMEA out of Grasbrunn, Germany, just outside of Munich. If you will, a large presence in Reading, Paris, Stockholm. We have other locations as well. But these are the main highlights. And we cover the continents of Africa out of South Africa in Johannesburg.

In Asia Pacific, just under $100 million in fiscal '12. With EasyLink in our own growth plans in Asia Pacific, this will be above $100 million in fiscal year '13. We've been able to grow -- the company has been able to grow Asia Pacific over the last 5 or 6 years to really emerge as a greater than a $100 million business. And EasyLink has a fair amount of scale in Asia Pacific. But in '12, it was roughly $100 million at 42% year-over-year growth and roughly contributed 8% of our business. I wouldn't be surprised if Asia Pacific was in double-digits in fiscal '13, given its growth rate and the addition of EasyLink Services in APJ. And we run APJ out of Sydney, Australia.

I want to get on and speak a little bit about EIM. And I want to use a few analogies to describe it. And I want to use a markets evolve analogy and use 2 examples that we all may be familiar with. I think of the platform. If we think back 10, 15 years around the database market, application server, business intelligence, developer tools and think of all the companies we know that were in those spaces, all the database companies that we knew that were in that space, all the developer tool companies that we knew of in the space, application server companies, business intelligence companies. 15 years later, there's a platform. Markets evolve, they expand, they consolidate and they build a bigger category. That's happened in the platform, right? And now you think of a platform, and you have IBM's platform, you have SAP's platform, Oracle's platform, Microsoft's platform. We've gone from hundreds of companies in these subcategories to 4 leaders in the bigger category. This market has evolved.

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