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Novell Reports Financial Results for Second Fiscal Quarter 2009

Posted on: Thursday, 28 May 2009, 15:00 CDT

- Operating margin improves year-over-year

- Linux Platform Products revenue increases 25% year-over-year

WALTHAM, Mass., May 28 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2009. For the quarter, Novell reported net revenue of $216 million. This compares to net revenue of $236 million for the second fiscal quarter of 2008. Income from operations for the second fiscal quarter of 2009 was $18 million, compared to income from operations of $2 million for the second fiscal quarter of 2008. Net income in the second fiscal quarter of 2009 was $16 million, or $0.05 per share. This compares to net income of $6 million, or $0.02 per share, for the second fiscal quarter of 2008. In the second fiscal quarter of 2009, foreign currency exchange rates negatively impacted net revenue by $6 million and favorably impacted operating expenses by $13 million and income from operations by $7 million compared to the same period last year.

On a non-GAAP basis, income from operations for the second fiscal quarter of 2009 was $35 million. This compares to non-GAAP income from operations of $16 million in the year-ago quarter. Non-GAAP net income for the second fiscal quarter of 2009 was $29 million, or $0.08 per share. This compares to non-GAAP net income of $21 million, or $0.06 per share, for the second fiscal quarter of 2008. A reconciliation of GAAP to non-GAAP results is provided in the financial schedules as part of this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Novell reported $39 million of product revenue from Open Platform Solutions, of which $37 million was from Linux Platform Products, up 25% compared to the product revenue from Linux Platform Products from the same period last year. Product revenue from Identity and Security Management was $30 million, of which Identity, Access and Compliance Management was $28 million, up 2% compared to the product revenue from Identity, Access and Compliance Management from the same period last year. Product revenue from Systems and Resource Management was $40 million, down 2% compared to the same period last year. Workgroup product revenue of $79 million decreased 14% compared to the same period last year.

"While total invoicing declined, in line with global economic trends, I am pleased with the continued expansion of our operating margin. Within our portfolio, our growth businesses - Linux, Identity and Systems and Resource Management - have strong prospects and continue to show promise," said Ron Hovsepian, President and CEO of Novell. "Our Linux and Identity businesses have the greatest potential to continue to expand operating margins, and we plan to attain profitability within these businesses no later than 12-18 months from today, barring unforeseen circumstances."

Cash, cash equivalents and short-term investments were $1 billion at April 30, 2009, consistent with last quarter. Days sales outstanding in accounts receivable was 55 days at the end of the second fiscal quarter of 2009, improved from 66 days at the end of the year-ago quarter. Total deferred revenue was $659 million at the end of the second fiscal quarter of 2009, down from $702 million at the end of the year-ago quarter. For the second fiscal quarter of 2009, cash flow from operations was negative $26 million, in line with seasonal trends. This compares to cash flow from operations of negative $19 million in the second fiscal quarter of 2008.

Further details on Novell's reported results are included in the financial schedules that are a part of this release.

Financial Outlook

Novell management remains committed to long-term sustainable profitability. Novell management expects to maintain double-digit non-GAAP operating margins in the full fiscal year 2009, barring unforeseen circumstances.

Conference Call Notification and Web Access Detail

A one-hour conference call with Novell management to discuss the quarter will be broadcast at 5:00 PM ET on May 28, 2009. The conference call will be available live as a listen-only webcast from Novell's Investor Relations web page at: www.novell.com/company/ir/qresults. The domestic toll-free dial-in number is 866-335-5255, password "Novell." The international dial-in number is +1-706-679-2263, password "Novell."

Following the live event, an archived version of the webcast will be available for twelve months on the Novell Investor Relations web page at: www.novell.com/company/ir/qresults.

A copy of this press release is posted on the Novell Investor Relations web page at: 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, adjusted operating margin, adjusted income from continuing operations, adjusted net income, adjusted income per share from continuing operations and adjusted 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 compensation. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are excluded from most analysts' consensus estimates, that are unusual, 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.

We also present a projection of our non-GAAP operating margin. This projection is a forward-looking, non-GAAP financial measure. The corresponding GAAP financial measure of operating margin is not available and cannot be provided without undue effort because we are unable to accurately forecast information regarding expenses or gains such as, but not limited to, those listed above. We believe that the corresponding GAAP financial measure is not likely to be significant to an understanding of our business because there is likely to be substantial variability between projected and actual realization of the expenses and gains described above and/or that such expenses or gains are likely to arise outside of the ordinary course of business.

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, targets, and prospects; future opportunities; expansion of operating margins; progress of growth businesses; profitability; the macroeconomic environment; customer priorities; timing of realization of projections; functionality, characteristics, quality and performance capabilities of Novell's products and technology; and results achievable and benefits attainable through deployment of Novell's products and provision of services. Actual results may differ materially from the results discussed in or implied by such forward-looking statements, which are based upon information that is currently available to us and/or management's current expectations, speak only as of the date hereof, and are subject to a number of factors, including, but not limited to: difficulties, delays or unexpected costs in completing our cost reduction and sales growth strategic initiatives; our ability to attract and retain new customers through our indirect sales strategy; our reliance on an indirect sales channel for the distribution of products; our ability to renew SLES subscriptions with those customers who have received SLES certificates from Microsoft; an accelerated decline in our OES and NetWare-related revenue stream; the ability of our Open Platform Solutions, Identity and Security Management, and Systems and Resource Management business unit segments to grow at expected rates; our ability to successfully integrate acquired companies; our ability to compete in markets for infrastructure software services; our ability to meet customer demand for technical support services; our ability to maintain a strong brand; delays in the introduction of new products; increased foreign research and development operations; reliance on software licensed from third parties; our ability to attract and retain talented employees; claims that we have infringed the intellectual property rights of others; adverse results in legal disputes; our ability to protect our confidential information; impairment of goodwill or amortizable intangible assets causing a charge to earnings; exposure to increased economic and regulatory uncertainties from operating a global business; cancellations or reductions in the scope of our engagements with professional services clients; and uncertain economic conditions and reductions in IT spending.

A detailed discussion of these and other factors that could affect our results is included in our SEC filings, including, but not limited to, our Annual Report on Form 10-K for the Fiscal Year Ended October 31, 2008 filed with the SEC on December 23, 2008, which may be obtained by calling (800) 317- 3195, or at our Investor Relations web site at http://www.novell.com/company/ir.

We expressly disclaim any obligation, except as required by law, or undertaking to update or revise any forward-looking statements contained in this press release to reflect any change of expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part.

About Novell

Novell, Inc. (NASDAQ: NOVL) delivers an interoperable Linux* platform and a portfolio of integrated IT management software designed to help 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 www.novell.com.

Novell and the Novell logo 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 Fiscal Year-to- Ended Date -------------- --------------- Apr 30, Apr 30, Apr 30, Apr 30, 2009 2008 2009 2008 ----- ----- ----- ----- Net revenue: Software licenses $30,250 $44,416 $58,517 $84,618 Maintenance and subscriptions 158,329 150,872 317,144 300,939 Services (1) 27,016 40,378 54,805 81,035 ------ ------ ------ ------ Total net revenue 215,595 235,666 430,466 466,592 ------- ------- ------- ------- Cost of revenue: Software licenses 2,380 4,028 4,906 7,127 Maintenance and subscriptions 12,345 12,007 25,244 22,948 Services 30,557 44,432 62,029 88,333 ------ ------ ------ ------ Total cost of revenue 45,282 60,467 92,179 118,408 ------ ------ ------ ------- Gross profit 170,313 175,199 338,287 348,184 ------- ------- ------- ------- Operating expenses: Sales and marketing 75,697 93,906 152,591 181,911 Product development 44,552 46,275 89,944 91,010 General and administrative 25,032 28,849 49,227 56,246 Other operating expenses (2) 7,408 4,502 15,257 8,869 ----- ----- ------ ----- Total operating expenses 152,689 173,532 307,019 338,036 Income from operations 17,624 1,667 31,268 10,148 Operating margin % 8.2% 0.7% 7.3% 2.2% Other income, net: Interest income, net 3,333 9,974 9,123 26,423 Other (3,129) 7,878 (6,555) 8,585 ------ ----- ------ ----- Total other income, net 204 17,852 2,568 35,008 --- ------ ----- ------ Income from continuing operations before taxes 17,828 19,519 33,836 45,156 Income tax expense 2,777 13,653 9,144 24,606 ----- ------ ----- ------ Income from continuing operations 15,051 5,866 24,692 20,550 Income from discontinued operations before taxes 566 - 1,602 1,285 Income tax benefit on discontinued operations - - - (836) --- --- --- ---- Income from discontinued operations 566 - 1,602 2,121 Net income $15,617 $5,866 $26,294 $22,671 ======= ====== ======= ======= Diluted earnings per share: Continuing operations $0.04 $0.02 $0.07 $0.06 Net income $0.05 $0.02 $0.08 $0.06 Weighted average shares 345,839 354,287 345,543 353,660 (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, 2009 Oct 31, 2008 ------------ ------------ Assets Current assets: Cash and cash equivalents $619,948 $680,034 Short-term investments 384,818 387,813 Restricted cash 52,961 52,701 Receivables, net 136,190 193,088 Prepaid expenses 32,363 34,365 Current deferred tax assets 4,662 5,685 Other current assets 24,423 32,006 ------ ------ Total current assets 1,255,365 1,385,692 Property, plant and equipment, net 164,852 174,978 Long-term investments 10,140 14,972 Goodwill 619,744 582,117 Intangible assets, net 54,392 53,320 Deferred income taxes 30,073 36,244 Other assets 20,892 22,026 ------ ------ Total assets $2,155,458 $2,269,349 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $25,588 $36,982 Accrued compensation 77,619 102,317 Other accrued liabilities 88,879 108,929 Income taxes payable 3,317 22,563 Senior convertible debentures 121,668 125,668 Deferred revenue 449,275 503,174 ------- ------- Total current liabilities 766,346 899,633 Deferred income taxes 13,515 11,725 Other long-term liabilities 39,787 43,587 Long-term deferred revenue 210,140 226,876 ------- ------- Total liabilities 1,029,788 1,181,821 Stockholders' equity 1,125,670 1,087,528 --------- --------- Total liabilities and stockholders' equity $2,155,458 $2,269,349 ========== ========== 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, 2009 2008 2009 2008 ----- ----- ----- ----- Cash flows from operating activities Net income $15,617 $5,866 $26,294 $22,671 Adjustments to reconcile net income to net cash used in operating activities: Stock-based compensation expense 5,691 7,010 13,722 17,777 Depreciation and amortization 10,452 9,847 21,473 18,847 Change in accounts receivable allowances 125 1,034 341 671 Utilization of previously reserved acquired net operating losses (1,102) 23 - 5,025 Purchased in-process research and development - 2,700 - 2,700 Gain on debenture repurchases - (405) (68) (405) Gain on discontinued operations, before taxes (566) - (1,602) (1,180) Impairment of investments 1,419 - 3,096 - Gain on sale of previously impaired long-term investments - (250) - (250) Loss (gain) on sale of subsidiaries 184 - (16) - Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions (57,927) (45,232) (76,695) (113,297) ------- ------- ------- -------- Net cash used in operating activities (26,107) (19,407) (13,455) (47,441) ------- ------- ------- ------- Cash flows from investing activities Purchases of property, plant and equipment (3,070) (10,463) (6,582) (16,322) Short-term investment activity 3,877 290,922 10,420 325,440 Long-term investment activity 1,201 14,523 1,736 14,523 Cash restricted due to litigation (82) (629) (260) (52,124) Net cash proceeds (distributions) from sale of discontinued operations - 2,508 1,036 (909) Cash paid for acquisitions, net of cash acquired (5,522) (220,473) (48,472) (220,473) Other 4,389 3,148 1,374 2,227 ----- ----- ----- ----- Net cash provided by (used in) investing activities 793 79,536 (40,748) 52,362 --- ------ ------- ------ Cash flows from financing activities Issuance of common stock 169 5,922 1,152 10,252 Excess tax benefits from stock-based compensation (2,814) 14,315 (2,788) 23,995 Debt repayment (186) - (378) - Debenture repurchases - (115,589) (3,869) (115,589) --- -------- ------ -------- Net cash used in financing activities (2,831) (95,352) (5,883) (81,342) ------ ------- ------ ------- Decrease in cash and cash equivalents (28,145) (35,223) (60,086) (76,421) Cash and cash equivalents - beginning of period 648,093 1,038,621 680,034 1,079,819 ------- --------- ------- --------- Cash and cash equivalents - end of period $619,948 $1,003,398 $619,948 $1,003,398 ======== ========== ======== ========== 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 Fiscal Year-to- Ended Date -------------- --------------- Apr 30, Apr 30, Apr 30, Apr 30, 2009 2008 2009 2008 ----- ----- ----- ----- GAAP income from operations $17,624 $1,667 $31,268 $10,148 ------- ------ ------- ------- Adjustments: Stock-based compensation expense: Cost of revenue 671 527 1,583 1,824 Sales and marketing 1,550 2,030 4,113 5,447 Product development 2,289 2,353 4,794 5,357 General and administrative 1,181 2,100 3,232 5,149 ----- ----- ----- ----- Sub-total 5,691 7,010 13,722 17,777 ----- ----- ------ ------ Acquisition-related intangible asset amortization: Cost of revenue 2,735 1,659 5,488 2,851 Sales and marketing 1,562 738 3,112 1,088 ----- --- ----- ----- Sub-total 4,297 2,397 8,600 3,939 ----- ----- ----- ----- Other operating expenses (income): Restructuring expenses 7,224 392 15,273 4,759 Purchased in-process research and development - 2,700 - 2,700 Acquisition integration costs - 1,410 - 1,410 Loss (gain) on sale of subsidiaries 184 - (16) - ----- --- ----- --- Sub-total 7,408 4,502 15,257 8,869 ----- ----- ------ ----- Total operating adjustments 17,396 13,909 37,579 30,585 Non-GAAP income from operations $35,020 $15,576 $68,847 $40,733 ======= ======= ======= ======= Operating margin % 16.2% 6.6% 16.0% 8.7% Novell, Inc. Unaudited Non-GAAP Adjusted Net Income (In thousands, except per share data) Fiscal Quarter Fiscal Year-to- Ended Date -------------- --------------- Apr 30, Apr 30, Apr 30, Apr 30, 2009 2008 2009 2008 ----- ----- ----- ----- GAAP net income $15,617 $5,866 $26,294 $22,671 ------- ------ ------- ------- Operating adjustments (detailed above) 17,396 13,909 37,579 30,585 Non-operating expenses (income) adjustments: Gain on debenture repurchases - (405) (68) (405) Impairment of investments 1,419 - 3,096 - Gain on sale of previously impaired long-term investments - (250) - (250) --- ---- --- ---- Sub-total 1,419 (655) 3,028 (655) ----- ---- ----- ---- Total pre-tax adjustments 18,815 13,254 40,607 29,930 Income tax adjustments (4,517) 1,948 (11,540) 796 Income from discontinued operations, net of taxes (566) - (1,602) (2,121) ---- --- ------ ------ Total net adjustments 13,732 15,202 27,465 28,605 Non-GAAP net income and non-GAAP income from continuing operations $29,349 $21,068 $53,759 $51,276 ======= ======= ======= ======= GAAP net income per share $0.05 $0.02 $0.08 $0.06 Total adjustments detailed above 0.03 0.04 0.08 0.08 ---- ---- ---- ---- Non-GAAP net income per share and non-GAAP income from continuing operations per share $0.08 $0.06 $0.16 $0.14 ===== ===== ===== ===== Non-GAAP weighted average shares 345,839 354,287 345,543 353,660 ======= ======= ======= ======= Revisions were made to prior period amounts in order to conform to the current period's presentation.

SOURCE Novell, Inc.

Source: PR Newswire

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