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Novell Reports Financial Results for Second Fiscal Quarter 2008

WALTHAM, Mass., May 29 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2008. For the quarter, Novell reported net revenue of $236 million. This compares to net revenue of $232 million for the second fiscal quarter 2007. Income from operations for the second fiscal quarter 2008 was $2 million, compared to a loss from operations of $12 million for the second fiscal quarter 2007. Income from continuing operations in the second fiscal quarter 2008 was $6 million, or $0.02 per share. This compares to a loss from continuing operations of $1 million, or $0.00 loss per share, for the second fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue by $8 million, unfavorably impacted operating expenses by $9 million and negatively impacted income from operations by $1 million year-over-year.

WALTHAM, Mass., May 29 /PRNewswire-FirstCall/ — Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2008. For the quarter, Novell reported net revenue of $236 million. This compares to net revenue of $232 million for the second fiscal quarter 2007. Income from operations for the second fiscal quarter 2008 was $2 million, compared to a loss from operations of $12 million for the second fiscal quarter 2007. Income from continuing operations in the second fiscal quarter 2008 was $6 million, or $0.02 per share. This compares to a loss from continuing operations of $1 million, or $0.00 loss per share, for the second fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue by $8 million, unfavorably impacted operating expenses by $9 million and negatively impacted income from operations by $1 million year-over-year.

On a non-GAAP basis, income from operations for the second fiscal quarter 2008 was $16 million. This compares to non-GAAP income from operations of $9 million in the year-ago quarter. Non-GAAP income from continuing operations for the second fiscal quarter 2008 was $21 million, or $0.06 per share. This compares to non-GAAP income from continuing operations of $16 million, or $0.05 per share, for the second fiscal quarter 2007.

For the second fiscal quarter 2008, Novell reported $30 million of product revenue from Open Platform Solutions of which $29 million was from Linux* Platform Products, up 31% year-over-year. Product revenue from Identity and Security Management was $31 million of which Identity and Access Management was $27 million, up 13% year-over-year. Product revenue from Systems and Resource Management was $41 million, up 15% year-over-year. Workgroup product revenue of $92 million was down 1% year-over-year.

"Our business continues to gain momentum, with strong product revenue growth in Linux, Identity and Systems and Resource Management," said Ron Hovsepian, President and CEO of Novell. "We are encouraged by our results and remain confident we will achieve our financial objectives for fiscal 2008."

Cash, cash equivalents and short-term investments were $1.4 billion at April 30, 2008, down from $1.8 billion in the year-ago quarter, primarily due to the acquisition of PlateSpin and the repurchase of a portion of our debentures. Days sales outstanding in accounts receivable was 66 days at the end of the second fiscal quarter 2008, up from 64 days at the end of the year-ago quarter. Total deferred revenue was $702 million at the end of the second fiscal quarter 2008, up from $700 million at the end of the year-ago quarter. Cash flow from operations was a negative $18 million for the second fiscal quarter 2008. This compares to negative cash flow from operations of $29 million in the second fiscal quarter 2007.

During the quarter, Novell repurchased a portion of its outstanding 0.5% senior convertible debentures due 2024. To date, $135 million of cash has been used for these activities. Novell has not repurchased any shares of common stock under the share repurchase program that it announced on May 13, 2008.

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 Novell management reiterates the following financial guidance: For the full fiscal year 2008: — Net revenue is expected to be between $940 million and $970 million. — Non-GAAP operating margin is expected to be between 7% and 9%, 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 May 29, 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 June 13, 2008. The call will also be available for telephone playback through midnight ET, June 13, 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 45769805.

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 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, acquisition-related intangible asset amortization, 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 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 acquired operations and employees, and the other factors described in Novell's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 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 the best engineered, most interoperable Linux platform and a portfolio of integrated IT management software that helps customers around the world reduce cost, complexity and risk. With our infrastructure software and ecosystem of partnerships, Novell harmoniously integrates mixed IT environments, allowing people and technology to work as one. 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 Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2008 2007 2008 2007 Net revenue: Software licenses $44,454 $41,779 $84,885 $80,332 Maintenance and subscriptions 150,122 139,742 299,305 274,413 Services (1) 41,090 50,866 82,402 96,028 Total net revenue 235,666 232,387 466,592 450,773 Cost of revenue: Software licenses 4,194 4,260 7,459 8,487 Maintenance and subscriptions 12,646 11,270 24,286 22,925 Services 44,228 49,040 87,862 97,605 Total cost of revenue 61,068 64,570 119,607 129,017 Gross profit 174,598 167,817 346,985 321,756 Operating expenses: Sales and marketing 92,076 88,173 178,681 178,274 Product development 48,029 52,562 94,087 99,029 General and administrative 28,324 28,377 55,200 53,260 Other operating expenses (2) 4,502 10,451 8,869 23,555 Total operating expenses 172,931 179,563 336,837 354,118 Income (loss) from operations 1,667 (11,746) 10,148 (32,362) Operating margin % 0.7% -5.1% 2.2% -7.2% Other income, net 17,852 13,760 35,008 31,793 Income (loss) from continuing operations, before income taxes 19,519 2,014 45,156 (569) Income tax expense 13,653 3,326 24,606 12,912 Income (loss) from continuing operations 5,866 (1,312) 20,550 (13,481) Income (loss) from discontinued operations, before income taxes – 1,269 1,285 (9,421) Income tax expense (benefit) on discontinued operations – 2,845 (836) (69) Income (loss) from discontinued operations – (1,576) 2,121 (9,352) Net income (loss) $5,866 $(2,888) $22,671 $(22,833) Income (loss) per share: Continuing operations $0.02 $(0.00) $0.06 $(0.04) Net income (loss) $0.02 $(0.01) $0.06 $(0.07) Weighted average shares (Diluted 2008, Basic 2007) 354,287 346,492 353,660 346,007 (1) Services includes professional services, technical support and training services. (2) See Page 8 of 11 for a detail of other operating expenses. Revisions 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) Apr 30, 2008 Oct 31, 2007 Assets Current assets: Cash and cash equivalents $1,003,398 $1,079,819 Short-term investments 427,322 777,818 Restricted cash 52,124 – Receivables, net 176,676 208,318 Prepaid expenses 54,910 53,316 Other current assets 29,260 35,065 Total current assets 1,743,690 2,154,336 Property, plant and equipment, net 183,743 180,537 Long-term investments 42,088 37,304 Goodwill 596,978 404,612 Intangible assets, net 58,033 33,572 Deferred income taxes 27,321 14,518 Other assets 27,470 29,515 Total assets $2,679,323 $2,854,394 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $40,841 $45,135 Accrued compensation 88,348 112,794 Other accrued liabilities 98,849 122,850 Income taxes payable 7,244 46,724 Deferred revenue 450,945 494,615 Total current liabilities 686,227 822,118 Deferred income taxes 1,361 884 Other long-term liabilities 40,502 – Long-term deferred revenue 250,629 273,066 Senior convertible debentures 479,394 600,000 Total liabilities 1,458,113 1,696,068 Stockholders' equity 1,221,210 1,158,326 Total liabilities and stockholders' equity $2,679,323 $2,854,394 Novell, Inc. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands) Fiscal Quarter Ended Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2008 2007 2008 2007 Cash flows from operating activities Net income (loss) $5,866 $(2,888) $22,671 $(22,833) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Stock-based compensation expense 7,010 8,131 17,777 14,630 Stock-based compensation modification expense – 1,802 – 1,802 Depreciation and amortization 9,847 10,309 18,847 21,473 Change in accounts receivable allowances 1,034 (1,224) 671 (451) Utilization of previously reserved acquired net operating losses 23 2,354 5,025 4,825 Purchased in-process research and development 2,700 – 2,700 – Gain on debenture repurchases (405) – (405) – Gain on long-term investments (250) – (250) (1,738) Gain on sale of venture capital funds – – – (3,591) (Gain) loss on discontinued operations, before taxes – (628) (1,180) 10,220 Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions (43,506) (47,111) (109,823) 293,936 Net cash (used in) provided by operating activities (17,681) (29,255) (43,967) 318,273 Cash flows from financing activities Issuance of common stock, net 4,196 742 6,778 8,122 Excess tax effects from stock-based compensation 14,315 2,737 23,995 4,723 Debenture repurchases (115,589) – (115,589) – Net cash (used in) provided by financing activities (97,078) 3,479 (84,816) 12,845 Cash flows from investing activities Purchases of property, plant and equipment (10,463) (7,550) (16,322) (12,508) Short-term investment activity 290,922 (47,552) 325,440 (47,420) Long-term investment activity 14,523 – 14,523 1,738 Cash restricted due to litigation (629) – (52,124) – Net proceeds (distributions) from the sale of discontinued operations 2,508 2,749 (909) 2,749 Proceeds from sale of venture capital funds – – – 4,964 Net cash paid for acquisitions (220,473) – (220,473) (9,727) Purchases of intangible assets – (875) – (875) Other 3,148 4,518 2,227 5,166 Net cash provided by (used in) investing activities 79,536 (48,710) 52,362 (55,913) Increase (decrease) in cash and cash equivalents (35,223) (74,486) (76,421) 275,205 Cash and cash equivalents – beginning of period 1,038,621 1,025,478 1,079,819 675,787 Cash and cash equivalents – end of period $1,003,398 $950,992 $1,003,398 $950,992 Revisions were made to prior period amounts in order to conform to the current period's presentation. Novell, Inc. Unaudited Non-GAAP Adjusted Income From Operations (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2008 2007 2008 2007 GAAP income (loss) from operations $1,667 $(11,746) $10,148 $(32,362) Adjustments: Stock-based compensation expense: Cost of revenue 535 937 1,843 1,984 Sales and marketing 2,030 2,400 5,447 4,260 Product development 2,353 2,535 5,357 4,686 General and administrative 2,092 2,259 5,130 3,700 Sub-total 7,010 8,131 17,777 14,630 Acquisition-related intangible asset amortization: Cost of revenue 1,659 1,310 2,851 2,556 Sales and marketing 738 509 1,088 1,879 Product development – – – 227 Sub-total 2,397 1,819 3,939 4,662 Other operating expenses (income): Restructuring expenses 392 4,523 4,759 11,867 Purchased in-process research and development 2,700 – 2,700 – Litigation-related income – – – (543) Acquisition integration costs 1,410 – 1,410 – Stock-based compensation review expenses – 5,928 – 12,231 Sub-total 4,502 10,451 8,869 23,555 Total operating adjustments 13,909 20,401 30,585 42,847 Non-GAAP income from operations $15,576 $8,655 $40,733 $10,485 Operating margin % 6.6% 3.7% 8.7% 2.3% Novell, Inc. Unaudited Non-GAAP Adjusted Net Income (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2008 2007 2008 2007 GAAP net income (loss) $5,866 $(2,888) $22,671 $(22,833) Operating adjustments (detailed above) 13,909 20,401 30,585 42,847 Non-operating expenses (income) adjustments: Gain on sale of venture capital funds – – – (3,591) Gain on debenture repurchases (405) – (405) – Gain on long-term investments (250) – (250) (1,738) Sub-total (655) – (655) (5,329) Total pre-tax adjustments 13,254 20,401 29,930 37,518 Income tax adjustments 1,948 (2,638) 1,554 (341) Income (loss) from discontinued operations, net of taxes – 1,576 (2,121) 9,352 Total net adjustments 15,202 19,339 29,363 46,529 Non-GAAP net income and non-GAAP income from continuing operations $21,068 $16,451 $52,034 $23,696 GAAP net income (loss) per share $0.02 $(0.01) $0.06 $(0.07) Total adjustments detailed above 0.04 0.06 0.09 0.14 Non-GAAP net income per share and non-GAAP income from continuing operations per share $0.06 $0.05 $0.15 $0.07 GAAP weighted average shares 354,287 346,492 353,660 346,007 Change from basic to diluted weighted average shares – 2,091 – 1,971 Non-GAAP weighted average shares 354,287 348,583 353,660 347,978 Revisions were made to prior period amounts in order to conform to the current period's presentation.

SOURCE Novell, Inc.

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