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Novell Reports Financial Results for First Fiscal Quarter 2008

WALTHAM, Mass., Feb. 28 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its first fiscal quarter ended Jan. 31, 2008. For the quarter, Novell reported net revenue of $231 million. This compares to net revenue of $218 million for the first fiscal quarter 2007. Income from operations for the first fiscal quarter 2008 was $8 million, compared to a loss from operations of $21 million for the first fiscal quarter 2007. Income from continuing operations in the first fiscal quarter 2008 was $15 million, or $0.04 per share. This compares to a loss from continuing operations of $12 million, or $0.04 loss per share, for the first fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue and unfavorably impacted operating expenses by $7 million and did not materially impact income from operations year-over-year.

WALTHAM, Mass., Feb. 28 /PRNewswire-FirstCall/ — Novell, Inc. (Nasdaq: NOVL) today announced financial results for its first fiscal quarter ended Jan. 31, 2008. For the quarter, Novell reported net revenue of $231 million. This compares to net revenue of $218 million for the first fiscal quarter 2007. Income from operations for the first fiscal quarter 2008 was $8 million, compared to a loss from operations of $21 million for the first fiscal quarter 2007. Income from continuing operations in the first fiscal quarter 2008 was $15 million, or $0.04 per share. This compares to a loss from continuing operations of $12 million, or $0.04 loss per share, for the first fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue and unfavorably impacted operating expenses by $7 million and did not materially impact income from operations year-over-year.

On a non-GAAP basis, income from operations for the first fiscal quarter 2008 was $24 million. This compares to non-GAAP loss from operations of $1 million in the year-ago quarter. Non-GAAP income from continuing operations for the first fiscal quarter 2008 was $29 million, or $0.08 per share. This compares to non-GAAP income from continuing operations of $3 million, or $0.01 per share, for the first fiscal quarter 2007.

For the first fiscal quarter 2008, Novell reported $30 million of revenue from Open Platform Solutions of which $28 million was from Linux* Platform Products, up 65 percent year-over-year. Revenue from Identity and Security Management was $32 million, of which Identity and Access Management was $28 million, up 15 percent year-over-year. Revenue from Systems and Resource Management was $37 million, up 5 percent year-over-year. Workgroup revenue of $90 million was up 1 percent year-over-year.

"We are very pleased with our results this quarter. We delivered product revenue growth across all business units and continued expense control this quarter," said Ron Hovsepian, president and CEO of Novell. "These results are indicative that our strategic initiatives are yielding tangible results and that we are on the right path to achieve long-term, sustainable profitability."

Cash, cash equivalents and short-term investments were $1.8 billion at Jan. 31, 2008, consistent with the year-ago quarter. Days sales outstanding in accounts receivable was 51 days at the end of the first fiscal quarter 2008, down from 57 days at the end of the year-ago quarter. Total deferred revenue was $723 million at the end of the first fiscal quarter 2008, down from $728 million at the end of the year-ago quarter. Cash flow from operations was a negative $26 million for the first fiscal quarter 2008, which includes $31 million in special interest and restructuring payments. This compares to cash flow from operations of $348 million in the first fiscal quarter 2007, which includes the $348 million payment from Microsoft and $8 million in special interest payments.

Full details on Novell's reported results, including a reconciliation of the non-GAAP results, are included in the financial schedules that are a part of this release.

Financial Outlook

As a result of our acquisition of PlateSpin and our first fiscal quarter 2008 performance, Novell(R) management issues the following financial guidance:

For the full fiscal year 2008: — Net revenue is expected to be between $940 million and $970 million, exceeding previously stated guidance of between $920 million and $945 million. — Non-GAAP operating margin is expected to be between 7 and 9 percent, excluding all acquisition — related intangible asset amortization.

Conference Call Notification and Web Access Detail

A live Webcast of a Novell conference call to discuss the quarter will be broadcast at 5:00 PM ET Feb. 28, 2008, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 866-335-5255, password "Novell", and the international dial-in number is +1-706-679-2263, password "Novell".

The call will be archived on the Novell Web site approximately two hours after its conclusion and will remain on the Web site until March 14, 2008. The call will also be available for telephone playback through midnight ET, March 14, 2008. The domestic toll-free replay number is 800-642-1687, and the international replay number is +1-706-645-9291. Replay listeners must enter conference ID number 33480646.

A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/.

Non-GAAP Financial Measures

We supplement our consolidated unaudited condensed financial statements presented in accordance with GAAP with certain non-GAAP financial measures. These non-GAAP measures include adjusted income (loss) from operations, operating margin, income from continuing operations, net income, income per share from continuing operations and net income per share both of which are based on an adjusted number of diluted weighted average shares. We provide non-GAAP financial measures to enhance an overall understanding of our current financial performance and prospects for the future and enable investors to evaluate our performance in the same way that management does. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources, and determine bonuses. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are unusual, that are excluded from analysts' consensus estimates, and/or that arise outside of the ordinary course of business, such as, but not limited to, stock-based compensation expenses, restructuring expenses, asset impairments, litigation judgments and settlements, the write-off of acquired in-process research and development, and gains (losses) on the sale of business operations, long-term investments, and property, plant and equipment.

Legal Notice Regarding Forward-Looking Statements

This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act, including those related to future financial and operating results, future opportunities, the benefits and synergies of the company's brands, strategies and acquisitions, and the growth of the market for Linux Platform Products, Identity and Access Management, and Systems and Resource Management. You should be aware that Novell's actual results could differ materially from those contained in the forward-looking statements, which are based on current expectations of Novell management and are subject to a number of risks and uncertainties, including, but not limited to, Novell's completion of announced acquisitions, Novell's ability to transform its business through the implementation of its strategic plan, Novell's ability to realize the benefits anticipated from the Microsoft transaction and other transactions, Novell's ability to realize the benefits anticipated from its restructuring plan, and the expected charges to be incurred and payments to be made under the restructuring plan, Novell's ability to achieve its expense targets, Novell's success in executing its Linux Platform Products, Identity and Access Management, and Systems and Resource Management strategies, Novell's ability to take a competitive position in the Linux Platform Products, Identity and Access Management, and Systems and Resource Management industries, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand, Novell's ability to integrate acquiredoperations and employees, and the other factors described in Novell's Annual Report on Form 10-K filed with the Securities and Exchange Commission on Dec. 21, 2007. Novell disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release except as required by the securities laws.

About Novell

Novell, Inc. (Nasdaq: NOVL) delivers infrastructure software for the Open Enterprise. Novell is a leader in desktop to data center operating systems based on Linux and the software required to secure and manage mixed IT environments. Novell helps customers around the world minimize cost, complexity and risk, allowing them to focus on innovation and growth. For more information, visit http://www.novell.com.

*Linux is a registered trademark of Linus Torvalds. All other third-party trademarks are the property of their respective owners.

Novell, Inc. Consolidated Unaudited Condensed Statements of Operations (In thousands, except per share data) Fiscal Quarter Ended Jan 31, 2008 Jan 31, 2007 Net revenue: Software licenses $40,431 $38,553 Maintenance and subscriptions 149,183 134,671 Services (1) 41,312 45,162 Total net revenue 230,926 218,386 Cost of revenue: Software licenses 3,265 4,227 Maintenance and subscriptions 11,640 11,655 Services 43,634 48,565 Total cost of revenue 58,539 64,447 Gross profit 172,387 153,939 Operating expenses: Sales and marketing 86,605 90,101 Product development 46,058 46,467 General and administrative 26,876 24,883 Other operating expenses (2) 4,367 13,104 Total operating expenses 163,906 174,555 Income (loss) from operations 8,481 (20,616) Operating margin % 3.7% -9.4% Other income, net 17,156 18,033 Income from continuing operations, before income taxes 25,637 (2,583) Income tax expense 10,953 9,586 Income (loss) from continuing operations 14,684 (12,169) Income (loss) from discontinued operations, before income taxes 1,285 (10,690) Income tax benefit on discontinued operations (836) (2,914) Income (loss) from discontinued operations 2,121 (7,776) Net income (loss) $16,805 $(19,945) Income (loss) per share: Continuing operations $0.04 $(0.04) Net income (loss) $0.05 $(0.06) Weighted average shares 353,047 345,522 (1) Services includes professional services, technical support and training services. (2) See Page 8 of 11 for a detail of other operating expenses. Reclassifications, none of which affected net income (loss), were made to prior period amounts in order to conform to the current period's presentation. Novell, Inc. Consolidated Unaudited Condensed Balance Sheets (In thousands) Jan 31, 2008 Oct 31, 2007 Assets Current assets: Cash and cash equivalents $1,038,621 $1,079,819 Short-term investments 728,788 777,818 Restricted cash 51,495 – Receivables, net 133,606 208,318 Prepaid expenses 68,742 53,316 Other current assets 32,263 35,065 Total current assets 2,053,515 2,154,336 Property, plant and equipment, net 177,082 180,537 Long-term investments 58,643 37,304 Goodwill 399,581 404,612 Intangible assets, net 32,030 33,572 Deferred income taxes 22,027 14,518 Other assets 28,660 29,515 Total assets $2,771,538 $2,854,394 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $34,247 $45,135 Accrued compensation 71,066 112,794 Other accrued liabilities 94,624 122,850 Income taxes payable 49,633 46,724 Deferred revenue 463,605 494,615 Total current liabilities 713,175 822,118 Deferred income taxes – 884 Long-term deferred revenue 259,537 273,066 Senior convertible debentures 600,000 600,000 Total liabilities 1,572,712 1,696,068 Stockholders' equity 1,198,826 1,158,326 Total liabilities and stockholders' equity $2,771,538 $2,854,394 Novell, Inc. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands) Fiscal Quarter Ended Jan 31, 2008 Jan 31, 2007 Cash flows from operating activities Net income (loss) $16,805 $(19,945) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation expense 10,767 6,499 Depreciation and amortization 9,000 11,164 Change in accounts receivable allowances (363) 773 Utilization of previously reserved acquired net operating losses 5,002 2,471 Gain on long-term investments – (1,738) Gain on sale of venture capital funds – (3,591) (Gain) loss on discontinued operations, before taxes (1,180) 10,848 Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions (66,317) 341,047 Net cash (used in) provided by operating activities (26,286) 347,528 Cash flows from financing activities Issuance of common stock, net 2,582 7,385 Excess tax effects from stock-based compensation 9,680 1,986 Payment of cash dividends on Series B Preferred Stock – (5) Net cash provided by financing activities 12,262 9,366 Cash flows from investing activities Purchases of property, plant and equipment (5,859) (4,958) Short-term investment activity 34,518 132 Long-term investment activity – 1,738 Cash restricted due to litigation (51,495) – Cash divested as a result of Swiss- based consulting unit disposition (3,417) – Proceeds from sale of venture capital funds – 4,964 Cash paid for acquisition of RedMojo, net of cash acquired – (9,727) Other (921) 648 Net cash used in investing activities (27,174) (7,203) Increase (decrease) in cash and cash equivalents (41,198) 349,691 Cash and cash equivalents – beginning of period 1,079,819 675,787 Cash and cash equivalents – end of period $1,038,621 $1,025,478 Novell, Inc. Unaudited Non-GAAP Adjusted Income From Operations (In thousands, except per share data) Fiscal Quarter Ended Jan 31, 2008 Jan 31, 2007 GAAP income (loss) from operations $8,481 $(20,616) Stock-based compensation expense adjustments: Cost of revenue 1,308 1,047 Sales and marketing 3,417 1,860 Product development 3,004 2,151 General and administrative 3,038 1,441 Sub-total 10,767 6,499 Other operating expenses (income) adjustments: Restructuring expenses 4,367 7,344 Litigation-related income – (543) Stock-based compensation review expenses – 6,303 Sub-total 4,367 13,104 Total operating adjustments 15,134 19,603 Non-GAAP income (loss) from operations $23,615 $(1,013) Operating margin % 10.2% -0.5% Novell, Inc. Unaudited Non-GAAP Adjusted Net Income (In thousands, except per share data) Fiscal Quarter Ended Jan 31, 2008 Jan 31, 2007 GAAP net income (loss) $16,805 $(19,945) Operating adjustments (detailed above) 15,134 19,603 Non-operating expenses (income) adjustments: Gain on sale of venture capital funds – (3,591) Gain on long-term investments – (1,738) Sub-total – (5,329) Total pre-tax adjustments 15,134 14,274 Income tax adjustments (537) 1,106 Income (loss) from discontinued operations, net of taxes (2,121) 7,776 Total net adjustments 12,476 23,156 Non-GAAP net income and non-GAAP income from continuing operations $29,281 $3,211 GAAP net income (loss) per share $0.05 $(0.06) Total adjustments detailed above 0.03 0.07 Non-GAAP net income per share and non-GAAP income from continuing operations per share $0.08 $0.01 GAAP weighted average shares 353,047 345,522 Assumed dilution from stock option exercises 3,022 4,228 Non-GAAP weighted average shares 356,069 349,750 Revisions were made to prior period amounts in order to conform to the current period's presentation.

SOURCE Novell, Inc.

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