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Novell Reports Financial Results for Third Fiscal Quarter 2008

WALTHAM, Mass., Aug. 28 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its third fiscal quarter ended July 31, 2008. For the quarter, Novell reported net revenue of $245 million. This compares to net revenue of $237 million for the third fiscal quarter 2007. Income from operations for the third fiscal quarter 2008 was $1 million, compared to a loss from operations of $10 million for the third fiscal quarter 2007. Loss from continuing operations in the third fiscal quarter 2008 was $15 million, or $0.04 loss per share, due to a $15 million impairment charge related to our auction-rate securities. This compares to a loss from continuing operations of $4 million, or $0.01 loss per share, for the third fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue by $7 million, 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 third fiscal quarter 2008 was $24 million. This compares to non-GAAP income from operations of $14 million in the year-ago quarter. Non-GAAP income from continuing operations for the third fiscal quarter 2008 was $21 million, or $0.06 per share. This compares to non-GAAP income from continuing operations of $19 million, or $0.05 per share, for the third fiscal quarter 2007.

WALTHAM, Mass., Aug. 28 /PRNewswire-FirstCall/ — Novell, Inc. (Nasdaq: NOVL) today announced financial results for its third fiscal quarter ended July 31, 2008. For the quarter, Novell reported net revenue of $245 million. This compares to net revenue of $237 million for the third fiscal quarter 2007. Income from operations for the third fiscal quarter 2008 was $1 million, compared to a loss from operations of $10 million for the third fiscal quarter 2007. Loss from continuing operations in the third fiscal quarter 2008 was $15 million, or $0.04 loss per share, due to a $15 million impairment charge related to our auction-rate securities. This compares to a loss from continuing operations of $4 million, or $0.01 loss per share, for the third fiscal quarter 2007. Foreign currency exchange rates favorably impacted revenue by $7 million, 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 third fiscal quarter 2008 was $24 million. This compares to non-GAAP income from operations of $14 million in the year-ago quarter. Non-GAAP income from continuing operations for the third fiscal quarter 2008 was $21 million, or $0.06 per share. This compares to non-GAAP income from continuing operations of $19 million, or $0.05 per share, for the third fiscal quarter 2007.

For the third fiscal quarter 2008, Novell reported $33 million of product revenue from Open Platform Solutions of which $31 million was from Linux Platform Products, up 30% year-over-year. Product revenue from Identity and Security Management was $37 million of which Identity and Access Management was $34 million, up 22% year-over-year. Product revenue from Systems and Resource Management was $47 million, up 25% year-over-year. Workgroup product revenue of $92 million was down 1% year-over-year.

"We had another quarter of strong product revenue growth and expanding operating margins," said Ron Hovsepian, President and CEO of Novell. "Our transformation of the company positions us well to focus on sustained growth in 2009."

Cash, cash equivalents and short-term investments were $1.4 billion at July 31, 2008, down from $1.8 billion in the year-ago quarter, primarily due to the acquisition of PlateSpin, the repurchase of a portion of our debentures and our stock repurchase program. Days sales outstanding in accounts receivable was 78 days at the end of the third fiscal quarter 2008, up from 74 days at the end of the year-ago quarter. Total deferred revenue was $726 million at the end of the third fiscal quarter 2008, down from $734 million at the end of the year-ago quarter. Cash flow from operations was $30 million for the third fiscal quarter 2008. This compares to cash flow from operations of $25 million in the third fiscal quarter 2007.

With regard to the Company's previously announced share repurchase program, Novell repurchased 7 million shares of common stock at a cost of $45 million during the quarter. To date, the Company has repurchased 10 million shares at a cost of $58 million. The Company has $42 million remaining under the existing share repurchase program.

During the quarter, Novell used $27 million of cash to repurchase a portion of its outstanding 0.5% senior convertible debentures. To date, $142 million of cash has been used for these repurchases.

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 issues 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 8% and 10%, exceeding previously stated guidance of between 7% to 9%.

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 August 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 September 12, 2008. The call will also be available for telephone playback through midnight ET, September 12, 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 56398624.

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. We provide non-GAAP financial measures to enhance an overall understanding of our current financial performance and prospects for the future and to 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, those related to stock-based compensation, acquisition-related intangible asset amortization, restructuring, asset impairments, litigation judgments and settlements, purchased in-process research and development, and 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 Linux Platform Products, Identity and Access Management, and Systems and Resource Management markets. 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.

Novell, the Novell logo, and PlateSpin are registered trademarks of Novell, Inc. in the United States and other countries. All third party marks 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 Jul 31, Jul 31, Jul 31, Jul 31, 2008 2007 2008 2007 Net revenue: Software licenses $53,408 $44,738 $138,293 $125,070 Maintenance and subscriptions 154,982 142,833 454,287 417,246 Services (1) 36,795 49,219 119,197 145,247 Total net revenue 245,185 236,790 711,777 687,563 Cost of revenue: Software licenses 5,544 4,793 13,003 13,280 Maintenance and subscriptions 13,948 13,184 38,234 36,109 Services 40,678 48,546 128,540 146,151 Total cost of revenue 60,170 66,523 179,777 195,540 Gross profit 185,015 170,267 532,000 492,023 Operating expenses: Sales and marketing 94,213 84,176 272,894 262,450 Product development 51,759 54,207 145,846 153,236 General and administrative 26,941 28,219 82,141 81,479 Other operating expenses (2) 11,131 13,780 20,000 37,335 Total operating expenses 184,044 180,382 520,881 534,500 Income (loss) from operations 971 (10,115) 11,119 (42,477) Operating margin % 0.4% -4.3% 1.6% -6.2% Other income (loss), net: Interest income, net 7,384 16,192 33,807 45,410 Other (16,160) (739) (7,575) 1,836 Total other income (loss), net (8,776) 15,453 26,232 47,246 Income (loss) from continuing operations, before income taxes (7,805) 5,338 37,351 4,769 Income tax expense 7,320 8,970 31,926 21,882 Income (loss) from continuing operations (15,125) (3,632) 5,425 (17,113) Income (loss) from discontinued operations, before income taxes – (47) 1,285 (9,468) Income tax benefit on discontinued operations – – (836) (69) Income (loss) from discontinued operations – (47) 2,121 (9,399) Net income (loss) $(15,125) $(3,679) $7,546 $(26,512) Income (loss) per share: Continuing operations $(0.04) $(0.01) $0.02 $(0.05) Net income (loss) $(0.04) $(0.01) $0.02 $(0.08) Weighted average shares 351,878 348,177 353,290 346,731 (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) Jul 31, 2008 Oct 31, 2007 Assets Current assets: Cash and cash equivalents $973,837 $1,079,819 Short-term investments 390,715 777,818 Restricted cash 52,410 – Receivables, net 212,923 208,318 Prepaid expenses 50,725 53,316 Deferred income taxes 3,773 – Other current assets 40,580 35,065 Total current assets 1,724,963 2,154,336 Property, plant and equipment, net 187,641 180,537 Long-term investments 29,586 37,304 Goodwill 593,983 404,612 Intangible assets, net 65,508 33,572 Deferred income taxes 32,729 14,518 Other assets 22,503 29,515 Total assets $2,656,913 $2,854,394 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $39,678 $45,135 Accrued compensation 100,323 112,794 Other accrued liabilities 104,469 122,850 Income taxes payable 14,772 46,724 Senior convertible debentures 451,394 – Deferred revenue 480,765 494,615 Total current liabilities 1,191,401 822,118 Deferred income taxes 7,703 884 Other long-term liabilities 45,436 – Long-term deferred revenue 244,876 273,066 Senior convertible debentures – 600,000 Total liabilities 1,489,416 1,696,068 Stockholders' equity 1,167,497 1,158,326 Total liabilities and stockholders' equity $2,656,913 $2,854,394 Novell, Inc. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands) Fiscal Quarter Ended Fiscal Year-to-Date Jul 31, Jul 31, Jul 31, Jul 31, 2008 2007 2008 2007 Cash flows from operating activities Net income (loss) $(15,125) $(3,679) $7,546 $(26,512) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Stock-based compensation expense 7,593 8,859 25,370 23,489 Stock-based compensation modification expense – 673 – 2,475 Depreciation and amortization 11,980 9,690 30,827 31,163 Change in accounts receivable allowances (250) (427) 421 (878) Utilization of previously reserved acquired net operating losses 1 10 5,026 4,835 Purchased in-process research and development – – 2,700 – Gain on debenture repurchases (139) – (544) – (Gain) loss on discontinued operations, before taxes – – (1,180) 10,220 (Gain) loss on impaired long-term investments 14,738 – 14,488 (1,738) Gain on sale of venture capital funds – – – (3,591) Impairment of intangible assets – 3,851 – 3,851 Loss on subsidiary sales 3,811 – 3,811 – Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions 7,500 6,438 (102,323) 300,374 Net cash provided by (used in) operating activities 30,109 25,415 (13,858) 343,688 Cash flows from financing activities Issuance of common stock, net 868 6,248 7,646 14,370 Excess tax effects from stock- based compensation (7,186) 1,634 16,809 6,357 Common stock repurchases/retirements (44,663) – (44,663) – Debenture repurchases (26,868) – (142,457) – Net cash (used in) provided by financing activities (77,849) 7,882 (162,665) 20,727 Cash flows from investing activities Purchases of property, plant and equipment (12,201) (4,971) (28,523) (17,479) Short-term investment activity 33,820 (24,913) 359,260 (72,333) Long-term investment activity 7,215 – 21,738 1,738 Cash restricted due to litigation (286) – (52,410) – Net (distributions) proceeds from subsidiary sales (6,427) – (7,336) 2,749 Proceeds from sale of venture capital funds – – – 4,964 Net cash paid for acquisitions 920 – (219,553) (9,727) Purchases of intangible assets (6,000) (300) (6,000) (1,175) Other 1,138 3,274 3,365 8,440 Net cash provided by (used in) investing activities 18,179 (26,910) 70,541 (82,823) (Decrease) increase in cash and cash equivalents (29,561) 6,387 (105,982) 281,592 Cash and cash equivalents — beginning of period 1,003,398 950,992 1,079,819 675,787 Cash and cash equivalents — end of period $973,837 $957,379 $973,837 $957,379 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 Jul 31, Jul 31, Jul 31, Jul 31, 2008 2007 2008 2007 GAAP income (loss) from operations $971 $(10,115) $11,119 $(42,477) Adjustments: Stock-based compensation expense: Cost of revenue 881 1,257 2,724 3,241 Sales and marketing 1,953 2,831 7,400 7,091 Product development 2,543 2,684 7,900 7,370 General and administrative 2,216 2,087 7,346 5,787 Sub-total 7,593 8,859 25,370 23,489 Acquisition-related intangible asset amortization: Cost of revenue 3,184 1,360 6,035 3,916 Sales and marketing 1,341 511 2,429 2,390 Product development – – – 227 Sub-total 4,525 1,871 8,464 6,533 Other operating expenses (income): Restructuring expenses 6,570 6,024 11,329 17,891 Purchased in-process research and development – – 2,700 – Litigation-related expense (income) 750 450 750 (93) Acquisition integration costs – – 1,410 – Loss on subsidiary sales 3,811 – 3,811 – Impairment of intangible assets – 3,851 – 3,851 Stock-based compensation review expenses – 3,455 – 15,686 Sub-total 11,131 13,780 20,000 37,335 Total operating adjustments 23,249 24,510 53,834 67,357 Non-GAAP income from operations $24,220 $14,395 $64,953 $24,880 Operating margin % 9.9% 6.1% 9.1% 3.6% Novell, Inc. Unaudited Non-GAAP Adjusted Net Income (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year-to-Date Jul 31, Jul 31, Jul 31, Jul 31, 2008 2007 2008 2007 GAAP net income (loss) $(15,125) $(3,679) $7,546 $(26,512) Operating adjustments (detailed above) 23,249 24,510 53,834 67,357 Non-operating expenses (income) adjustments: Gain on sale of venture capital funds – – – (3,591) Gain on debenture repurchases (139) – (544) – (Gain) loss on impaired long- term investments 14,738 – 14,488 (1,738) Sub-total 14,599 – 13,944 (5,329) Total pre-tax adjustments 37,848 24,510 67,778 62,028 Income tax adjustments (1,888) (2,121) (334) (2,462) Income (loss) from discontinued operations, net of taxes – 47 (2,121) 9,399 Total net adjustments 35,960 22,436 65,323 68,965 Non-GAAP net income and non-GAAP income from continuing operations $20,835 $18,757 $72,869 $42,453 GAAP net income (loss) per share $(0.04) $(0.01) $0.02 $(0.08) Total adjustments detailed above 0.10 0.06 0.19 0.20 Non-GAAP net income per share and non-GAAP income from continuing operations per share $0.06 $0.05 $0.21 $0.12 GAAP weighted average shares 351,878 348,177 353,290 346,731 Change from basic to diluted weighted average shares 1,319 2,969 – 2,217 Non-GAAP weighted average shares 353,197 351,146 353,290 348,948 Revisions were made to prior period amounts in order to conform to the current period's presentation.

SOURCE Novell, Inc.

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