Novell Reports Financial Results for First Fiscal Quarter 2010
- Security, Management and Operating Platforms business unit invoicing grew 26% year-over-year
- Solid operating margin performance
WALTHAM, Mass., Feb. 25 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its first fiscal quarter ended January 31, 2010. For the quarter, Novell reported net revenue of $202 million. This compares to net revenue of $215 million for the first fiscal quarter of 2009. GAAP income from operations for the first fiscal quarter of 2010 was $21 million. This compares to GAAP income from operations of $14 million for the first fiscal quarter of 2009. GAAP net income in the first fiscal quarter of 2010 was $20 million, or $0.06 per share. This compares to GAAP net income of $11 million, or $0.03 per share, for the first fiscal quarter of 2009. First fiscal quarter of 2010 results included a $5 million change in accounting estimate related to fiscal 2009 sales compensation that increased profitability in the first fiscal quarter of 2010. This benefit was more than offset by a $6 million negative impact to income from operations from foreign currency exchange rates compared to the same period last year. Foreign currency exchange rates favorably impacted net revenue by $1 million.
On a non-GAAP basis, income from operations for the first fiscal quarter of 2010 was $33 million. This compares to non-GAAP income from operations of $34 million in the same period last year. Non-GAAP net income for the first fiscal quarter of 2010 was $25 million, or $0.07 per share. This compares to non-GAAP net income of $24 million, or $0.07 per share, for the first fiscal quarter of 2009. 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."
"We are pleased with the invoicing recovery in our Security, Management and Operating Platforms business unit as well as our solid operating margin performance this quarter," said Ron Hovsepian, President and CEO of Novell.
Cash, cash equivalents and short-term investments were $991 million at January 31, 2010, up from $983 million last quarter. Days sales outstanding in accounts receivable was 50 days at the end of the first fiscal quarter of 2010, up from 46 days at the end of the year-ago quarter. Total deferred revenue was $646 million at the end of the first fiscal quarter of 2010, down from $705 million at the end of the year-ago quarter. For the first fiscal quarter of 2010, cash flow from operations was $5 million. This compares to cash flow from operations of $13 million for the first fiscal quarter of 2009, which included a $25 million payment from Microsoft.
Further details on Novell's reported results are included in the financial schedules that are a part of this release.
Financial Outlook
Novell management issues the following guidance for the second fiscal quarter of 2010:
- Net revenue is expected to be similar to first fiscal quarter of 2010 revenue levels
- Non-GAAP operating margin is expected to be between 12% and 15%
Conference Call Notification and Web Access Detail
A one-hour conference call with Novell management to discuss the quarter will be broadcast at 5:00PM ET on February 25, 2010. 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, 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 may include 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; market leadership and positioning; short-term and long-term trends; 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. Forward-looking statements forecasting growth in financial metrics are predicated on assumptions regarding improvements in the overall economy and the markets served by the Company and in which the Company operates, the timing of which are impossible to accurately predict. 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 and speak only as of the date hereof. We are subject to a number of risks, including, among others, risks relating to: indirect sales, growth rates of our business units, renewal of SUSE Linux Enterprise ServerTM subscriptions with customers who have received certificates from Microsoft, decline rates of Open Enterprise Server and NetWare® revenue, development of products and services, the Intelligent Workload Management market, software vulnerabilities, delays in product releases, reliance on open source software, adequacy of renewal rates, uncertain economic conditions, competition, rapid technological changes, failure to expand brand awareness, adequacy of technical support, pricing pressures, system failures, integration of acquisitions, industry consolidation, challenges resulting from a global business, foreign research and development operations, loss of key employees, intellectual property infringement, litigation matters, unpredictable financial results, impairments, the timing of revenue recognition, our investments, and effective use of our cash.
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, 2009 filed with the SEC on December 22, 2009, which may be obtained by calling (800) 317- 3195, or at our Investor Relations web page at: 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, the Novell logo, and NetWare are registered trademarks of Novell, Inc. in the United States and other countries. *All 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, 2010 Jan 31, 2009
------------ ------------
Net revenue:
Software licenses $21,193 $28,267
Maintenance and subscriptions 158,951 158,815
Services (1) 22,222 27,789
------ ------
Total net revenue 202,366 214,871
------- -------
Cost of revenue:
Software licenses 1,688 2,036
Maintenance and subscriptions 22,572 22,702
Services 19,458 22,159
------ ------
Total cost of revenue 43,718 46,897
------ ------
Gross profit 158,648 167,974
------- -------
Operating expenses:
Sales and marketing 68,916 76,894
Product development 39,702 45,392
General and administrative 25,827 24,195
Other operating expenses (2) 2,774 7,849
----- -----
Total operating expenses 137,219 154,330
Income from operations 21,429 13,644
Operating margin % 10.6% 6.3%
Other income, net:
Interest income, net 2,899 5,790
Other 3,767 (3,426)
----- ------
Total other income, net 6,666 2,364
----- -----
Income from continuing operations before taxes 28,095 16,008
Income tax expense 7,906 6,367
----- -----
Income from continuing operations 20,189 9,641
Income from discontinued operations - 1,036
--- -----
Net income $20,189 $10,677
======= =======
Diluted earnings per share:
Continuing operations $0.06 $0.03
Net income $0.06 $0.03
Weighted average shares 349,144 344,281
(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)
Jan 31, 2010 Oct 31, 2009
------------ ------------
Assets
Current assets:
Cash and cash equivalents $607,050 $591,656
Short-term investments 384,242 391,809
Restricted cash 53,045 53,033
Receivables, net 112,279 177,898
Prepaid expenses 17,996 17,708
Current deferred tax assets 5,442 5,521
Other current assets 23,023 26,747
------ ------
Total current assets 1,203,077 1,264,372
Property, plant and equipment, net 167,009 170,459
Long-term investments 2,070 10,303
Goodwill 356,194 356,033
Intangible assets, net 34,523 36,621
Deferred income taxes 21,673 26,717
Other assets 34,924 38,403
------ ------
Total assets $1,819,470 $1,902,908
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $31,859 $37,628
Accrued compensation 49,388 87,928
Other accrued liabilities 82,081 97,154
Income taxes payable 718 -
Deferred revenue 464,850 495,245
Total current liabilities 628,896 717,955
Deferred income taxes 8,360 8,403
Other long-term liabilities 48,000 48,502
Long-term deferred revenue 181,031 193,526
------- -------
Total liabilities 866,287 968,386
Stockholders' equity 953,183 934,522
------- -------
Total liabilities and stockholders' equity $1,819,470 $1,902,908
========== ==========
Revisions were made to prior period amounts in order to conform to the
current period's presentation.
Novell, Inc.
Consolidated Unaudited Condensed Statements of Cash Flows
(In thousands)
Fiscal Quarter Ended
--------------------
Jan 31, 2010 Jan 31, 2009
------------ ------------
Cash flows from operating
activities
Net income $20,189 $10,677
Adjustments to reconcile net
income to net cash provided by
operating activities:
Stock-based compensation expense 6,450 8,031
Depreciation and amortization 7,437 11,021
Change in accounts receivable
allowances (1,209) 212
Utilization of previously reserved
acquired net operating losses - 1,102
Gain on debenture repurchases - (68)
Income from discontinued
operations - (1,036)
Impairment of investments - 1,677
Gain on sale of previously
impaired long-term investments (5,228) -
Gain on sale of subsidiary - (200)
Changes in current assets and
liabilities, excluding the
effect of acquisitions and
dispositions (22,443) (18,818)
------- -------
Net cash provided by operating
activities 5,196 12,598
----- ------
Cash flows from investing
activities
Purchases of property, plant and
equipment (8,128) (3,512)
Short-term investment activity 11,998 6,543
Long-term investment activity 7,303 535
Change in restricted cash (12) (178)
Cash proceeds from sale of
discontinued operations 243 1,036
Cash paid for acquisitions, net of
cash acquired - (42,950)
Other 1,154 (2,350)
----- ------
Net cash provided by (used in)
investing activities 12,558 (40,876)
------ -------
Cash flows from financing
activities
Issuances of common stock 832 983
Excess tax effects from
stock-based compensation 1 26
Debt repayment - (192)
Debenture repurchases - (3,869)
--- ------
Net cash provided by (used in)
financing activities 833 (3,052)
--- ------
Increase (decrease) in cash
and cash equivalents 18,587 (31,330)
Effect of exchange rate
changes on cash (3,193) (611)
Cash and cash equivalents -
beginning of period 591,656 680,034
------- -------
Cash and cash equivalents - end
of period $607,050 $648,093
======== ========
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
----------------------
Jan 31, 2010 Jan 31, 2009
------------ ------------
GAAP income from operations $21,429 $13,644
------- -------
Adjustments:
Stock-based compensation expense:
Cost of revenue 559 912
Sales and marketing 1,840 2,563
Product development 2,064 2,505
General and administrative 1,987 2,051
----- -----
Sub-total 6,450 8,031
----- -----
Acquisition-related intangible
asset amortization:
Cost of revenue 1,090 2,753
Sales and marketing 1,008 1,550
Sub-total 2,098 4,303
----- -----
Other operating
expenses (income):
Restructuring expenses 2,774 8,049
Gain on sale of subsidiary - (200)
Sub-total 2,774 7,849
----- -----
Total operating adjustments 11,322 20,183
Non-GAAP income from
operations $32,751 $33,827
======= =======
Non-GAAP operating margin % 16.2% 15.7%
Novell, Inc.
Unaudited Non-GAAP Adjusted Net Income
(In thousands, except per share data)
Fiscal Quarter Ended
----------------------
Jan 31, 2010 Jan 31, 2009
------------ ------------
GAAP net income $20,189 $10,677
------- -------
Operating adjustments
(detailed above) 11,322 20,183
Non-operating expenses
(income) adjustments:
Gain on sale of previously impaired
long-term investments (5,228) -
Gain on debenture repurchases - (68)
Impairment of investments - 1,677
--- -----
Sub-total (5,228) 1,609
------ -----
Total pre-tax adjustments 6,094 21,792
Income tax adjustments (1,475) (7,023)
Income from
discontinued operations - (1,036)
--- ------
Total net adjustments 4,619 13,733
Non-GAAP net income and
non-GAAP income
from continuing operations $24,808 $24,410
======= =======
GAAP net income per share $0.06 $0.03
Total adjustments detailed above 0.01 0.04
---- ----
Non-GAAP net income per
share and non-GAAP
income from continuing
operations per share $0.07 $0.07
===== =====
Non-GAAP weighted
average shares 349,144 344,281
======= =======
SOURCE Novell, Inc.
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