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Novell, Inc. (NASDAQ: NOVL | Quote | Chart | News | PowerRating) today announced financial results for its first fiscal quarter ended January 31, 2009. For the quarter, Novell reported net revenue of $215 million. This compares to net revenue of $231 million for the first fiscal quarter of 2008. Income from operations for the first fiscal quarter of 2009 was $14 million, compared to income from operations of $8 million for the first fiscal quarter of 2008. Net income in the first fiscal quarter of 2009 was $11 million, or $0.03 per share. This compares to net income of $17 million, or $0.05 per share, for the first fiscal quarter of 2008. In the first fiscal quarter of 2009, foreign currency exchange rates negatively impacted net revenue by $3 million and favorably impacted operating expenses by $11 million and income from operations by $8 million compared to the same period last year.
On a non-GAAP basis, income from operations for the first fiscal quarter of 2009 was $34 million. This compares to non-GAAP income from operations of $25 million in the year-ago quarter. Non-GAAP net income for the first fiscal quarter of 2009 was $24 million, or $0.07 per share. This compares to non-GAAP net income of $30 million, or $0.09 per share, for the first fiscal quarter of 2008.
Novell reported $37 million of product revenue from Open Platform Solutions, of which $35 million was from Linux Platform Products, up 24% compared to the same period last year. Product revenue from Identity and Security Management was $28 million, of which Identity, Access and Compliance Management (formerly called Identity and Access Management) was $26 million, down 8% compared to the same period last year. Product revenue from Systems and Resource Management was $40 million, up 9% compared to the same period last year. Workgroup product revenue of $81 million decreased 9% compared to the same period last year.
"While our invoicing was below our expectations in this weak economy, we continued to take actions to carefully manage our operating margin," said Ron Hovsepian, President and CEO of Novell. "We are confident about our long-term growth opportunities and remain committed to maintaining our target profitability levels."
Cash, cash equivalents and short-term investments were $1.0 billion at January 31, 2009, consistent with last quarter. Days sales outstanding in accounts receivable was 46 days at the end of the first fiscal quarter of 2009, down from 51 days at the end of the year-ago quarter. Total deferred revenue was $705 million at the end of the first fiscal quarter of 2009, down from $723 million at the end of the year-ago quarter. For the first fiscal quarter of 2009, cash flow from operations was $14 million and included a $25 million payment from Microsoft. This compares to cash flow from operations of negative $26 million in the first fiscal quarter of 2008.
Novell did not repurchase any shares of common stock during the quarter under its share repurchase program. There is currently $33 million remaining under the share repurchase program, and Novell intends to use the program to maintain a steady level of shares outstanding.
During the quarter, Novell used $4 million of cash to repurchase a portion of its outstanding 0.5% senior convertible debentures.
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 remains committed to long-term sustainable profitability. Novell management reiterates its target of no less than 10% non-GAAP operating margin in the full fiscal year 2009.
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 February 26, 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 bonuses. 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.
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 our brands, strategies and acquisitions, and the growth of the Linux Platform Products, Identity, Access and Compliance Management, and Systems and Resource Management markets. 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 | Quote | Chart | News | PowerRating) 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 Ended
Jan 31, 2009 Jan 31, 2008
Net revenue:
Software licenses $ 28,267 $ 40,202
Maintenance and subscriptions 158,815 150,067
Services (1) 27,789 40,657
Total net revenue 214,871 230,926
Cost of revenue:
Software licenses 2,526 3,099
Maintenance and subscriptions 12,899 10,941
Services 31,472 43,901
Total cost of revenue 46,897 57,941
Gross profit 167,974 172,985
Operating expenses:
Sales and marketing 76,894 88,005
Product development 45,392 44,735
General and administrative 24,195 27,397
Other operating expenses (2) 7,849 4,367
Total operating expenses 154,330 164,504
Income from operations 13,644 8,481
Operating margin % 6.3 % 3.7 %
Other income, net:
Interest income, net 5,790 16,449
Other (3,426 ) 707
Total other income, net 2,364 17,156
Income from continuing operations before taxes 16,008 25,637
Income tax expense 6,367 10,953
Income from continuing operations 9,641 14,684
Income from discontinued operations before taxes 1,036 1,285
Income tax benefit on discontinued operations - (836 )
Income from discontinued operations 1,036 2,121
Net Income $ 10,677 $ 16,805
Diluted earnings per share:
Continuing operations $ 0.03 $ 0.04
Net income $ 0.03 $ 0.05
Weighted average shares 344,281 353,047
(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, 2009 Oct 31, 2008
Assets
Current assets:
Cash and cash equivalents $ 648,093 $ 680,034
Short-term investments 387,334 387,813
Restricted cash 52,879 52,701
Receivables, net 111,775 193,088
Prepaid expenses 32,508 34,365
Current deferred tax assets 4,718 5,685
Other current assets 25,705 32,006
Total current assets 1,263,012 1,385,692
Property, plant and equipment, net 168,126 174,978
Long-term investments 12,991 14,972
Goodwill 616,801 582,117
Intangible assets, net 57,817 53,320
Deferred income taxes 36,483 36,244
Other assets 21,848 22,026
Total assets $ 2,177,078 $ 2,269,349
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 28,544 $ 36,982
Accrued compensation 61,908 102,317
Other accrued liabilities 92,884 108,929
Income taxes payable 4,851 22,563
Senior convertible debentures 121,668 125,668
Deferred revenue 487,412 503,174
Total current liabilities 797,267 899,633
Deferred income taxes 11,643 11,725
Other long-term liabilities 46,354 43,587
Long-term deferred revenue 217,205 226,876
Total liabilities 1,072,469 1,181,821
Stockholders' equity 1,104,609 1,087,528
Total liabilities and stockholders' equity $ 2,177,078 $ 2,269,349
Novell, Inc.
Consolidated Unaudited Condensed Statements of Cash Flows
(In thousands)
Fiscal Quarter Ended
Jan 31, 2009 Jan 31, 2008
Cash flows from operating activities
Net income $ 10,677 $ 16,805
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Stock-based compensation expense 8,031 10,767
Depreciation and amortization 11,021 9,000
Change in accounts receivable allowances 216 (363 )
Utilization of previously reserved acquired net operating losses 1,102 5,002
Gain on debenture repurchases (68 ) -
Gain on discontinued operations, before taxes (1,036 ) (1,180 )
Impairment of investments 1,677 -
Gain on sale of subsidiaries (200 ) -
Changes in current assets and liabilities, excluding acquisitions (17,287 ) (66,317 )
and dispositions
Net cash provided by (used in) operating activities 14,133 (26,286 )
Cash flows from investing activities
Purchases of property, plant and equipment (3,512 ) (5,859 )
Short-term investment activity 6,543 34,518
Long-term investment activity 535 -
Cash restricted due to litigation (178 ) (51,495 )
Net proceeds from sale of discontinued operations 1,036 (3,417 )
Net cash paid for acquisitions (42,950 ) -
Other (3,015 ) (921 )
Net cash used in investing activities (41,541 ) (27,174 )
Cash flows from financing activities
(Surrenders) issuance of common stock, net (498 ) 2,582
Excess tax benefits from stock-based compensation 26 9,680
Debt repayment (192 ) -
Debenture repurchases (3,869 ) -
Net cash (used in) provided by financing activities (4,533 ) 12,262
Decrease in cash and cash equivalents (31,941 ) (41,198 )
Cash and cash equivalents - beginning of period 680,034 1,079,819
Cash and cash equivalents - end of period $ 648,093 $ 1,038,621
Novell, Inc.
Unaudited Non-GAAP Adjusted Income From Operations
(In thousands, except per share data)
Fiscal Quarter Ended
Jan 31, 2009 Jan 31, 2008
GAAP income from operations $ 13,644 $ 8,481
Adjustments:
Stock-based compensation expense:
Cost of revenue 912 1,297
Sales and marketing 2,563 3,417
Product development 2,505 3,004
General and administrative 2,051 3,049
Sub-total 8,031 10,767
Acquisition-related intangible asset amortization:
Cost of revenue 2,753 1,192
Sales and marketing 1,550 350
Sub-total 4,303 1,542
Other operating expenses (income):
Restructuring expenses 8,049 4,367
Gain on sale of subsidiaries (200 ) -
Sub-total 7,849 4,367
Total operating adjustments 20,183 16,676
Non-GAAP income from operations $ 33,827 $ 25,157
Operating margin % 15.7 % 10.9 %
Novell, Inc.
Unaudited Non-GAAP Adjusted Net Income
(In thousands, except per share data)
Fiscal Quarter Ended
Jan 31, 2009 Jan 31, 2008
GAAP net income $ 10,677 $ 16,805
Operating adjustments (detailed above) 20,183 16,676
Non-operating expenses (income) adjustments:
Gain on debenture repurchases (68 ) -
Impairment of investments 1,677 -
Sub-total 1,609 -
Total pre-tax adjustments 21,792 16,676
Income tax adjustments (7,023 ) (1,152 )
Income from discontinued operations, net of taxes (1,036 ) (2,121 )
Total net adjustments 13,733 13,403
Non-GAAP net income and non-GAAP income from continuing $ 24,410 $ 30,208
operations
GAAP net income per share $ 0.03 $ 0.05
Total adjustments detailed above 0.04 0.04
Non-GAAP net income per share and non-GAAP income from $ 0.07 $ 0.09
continuing operations per share
Non-GAAP weighted average shares 344,281 353,047
Revisions were made to prior period amounts in order to conform to
the current period's presentation.
SOURCE: Novell, Inc.
Press Contact: Novell, Inc. Ian Bruce, 781-464-8034 ibruce@novell.com or Investor Relations Contact: Novell, Inc. Susan Walker White, 800-317-3195 swhite@novell.com
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