Novell Reports Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2009

WALTHAM, Mass., Dec. 3 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its fourth fiscal quarter and full fiscal year ended October 31, 2009. For the quarter, Novell reported net revenue of $216 million. This compares to net revenue of $245 million for the fourth fiscal quarter of 2008. GAAP loss from operations for the fourth fiscal quarter of 2009 was $259 million, which included a $279 million non-cash impairment charge to goodwill and intangible assets. This compares to GAAP loss from operations of $6 million for the fourth fiscal quarter of 2008. GAAP net loss in the fourth fiscal quarter of 2009 was $256 million, or $0.74 loss per share. This compares to GAAP net loss of $16 million, or $0.05 loss per share, for the fourth fiscal quarter of 2008. In the fourth fiscal quarter of 2009, foreign currency exchange rates negatively impacted net revenue by $2 million, did not materially impact operating expenses and negatively impacted the loss from operations by $1 million compared to the same period last year.

On a non-GAAP basis, income from operations for the fourth fiscal quarter of 2009 was $37 million. This compares to non-GAAP income from operations of $32 million in the same period last year. Non-GAAP net income for the fourth fiscal quarter of 2009 was $38 million, or $0.11 per share. This compares to non-GAAP net income of $22 million, or $0.06 per share, for the fourth 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."

For the full fiscal year 2009, Novell reported net revenue of $862 million and GAAP loss from operations of $206 million, which included a $279 million non-cash impairment charge to goodwill and intangible assets. Comparatively, net revenue for the full fiscal year 2008 was $957 million and GAAP income from operations was $5 million. GAAP net loss for the full fiscal year 2009 was $213 million, or $0.62 loss per share, compared to a net loss of $9 million, or $0.02 loss per share, for the full fiscal year 2008. In the full fiscal year 2009, foreign currency exchange rates unfavorably impacted net revenue by $17 million, positively impacted operating expenses by $32 million and favorably impacted income from operations by $15 million compared to the prior fiscal year.

On a non-GAAP basis, income from operations for the full fiscal year 2009 was $139 million. This compares to non-GAAP income from operations of $97 million in the prior fiscal year. Non-GAAP net income for the full fiscal year 2009 was $117 million, or $0.34 per share. This compares to non-GAAP net income of $91 million, or $0.26 per share, for the full fiscal year 2008.

For the fourth fiscal quarter of 2009, Novell reported $41 million of product revenue from Open Platform Solutions, of which $39 million was from Linux Platform Products, up 14% compared to product revenue from Linux Platform Products in the same period last year. Product revenue from Identity and Security Management was $32 million, of which Identity, Access and Compliance Management was $30 million, down 14% compared to product revenue from Identity, Access and Compliance Management in the same period last year. Product revenue from Systems and Resource Management was $40 million, down 10% compared to the same period last year. Workgroup product revenue of $78 million decreased 15% compared to the same period last year.

For the full fiscal year 2009, Novell reported $157 million of product revenue from Open Platform Solutions, of which $149 million was from Linux Platform Products, up 21% compared to product revenue from Linux Platform Products in the prior fiscal year. Product revenue from Identity and Security Management was $121 million, of which Identity, Access and Compliance Management was $112 million, down 10% compared to product revenue from Identity, Access and Compliance Management in the prior fiscal year. Product revenue from Systems and Resource Management was $161 million, down 6% compared to the prior fiscal year. Workgroup product revenue of $319 million decreased 13% compared to the prior fiscal year.

"While it was a challenging year in terms of revenue, we worked hard to improve our cost structure, deliver innovative solutions, and expand our partner ecosystem while delivering a significant improvement in non-GAAP operating margin, which increased to 16% from 10% last year," said Ron Hovsepian, President and CEO of Novell. "As we move into 2010, we will focus on invoicing growth as we pursue opportunities in our current markets as well as new opportunities in the emerging market of Intelligent Workload Management."

Cash, cash equivalents and short-term investments were $983 million at October 31, 2009, up from $921 million last quarter. Days sales outstanding in accounts receivable was 75 days at the end of the fourth fiscal quarter of 2009, up from 72 days at the end of the year-ago quarter. Total deferred revenue was $689 million at the end of the fourth fiscal quarter of 2009, down from $730 million at the end of the year-ago quarter. For the full fiscal year 2009, cash flow from operations was $69 million. This compares to cash flow from operations of $56 million for the full fiscal year 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 issues the following guidance:

For the first fiscal quarter of 2010:

  • Net revenue is expected to be between $200 million and $210 million
  • Non-GAAP operating margin is expected to be between 14% and 16%
  • Invoicing growth is expected to improve from first fiscal quarter 2009 levels

Conference Call Notification and Web Access Detail

A one-hour conference call with Novell management to discuss the quarter and the year will be broadcast at 5:00PM ET on December 3, 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 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 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; operating margins; progress of growth businesses; invoicing growth; profitability; 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, 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(TM) 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 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 and the Novell logo are registered trademarks and SLES is a trademark 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 Ended
                    --------------------           -----------------
                  Oct 31, 2009  Oct 31, 2008  Oct 31, 2009  Oct 31, 2008
                  ------------  ------------  ------------  ------------
Net revenue:
  Software
   licenses            $31,382       $51,362      $116,919      $188,983
  Maintenance and
   subscriptions       159,902       159,656       640,745       616,493
  Services (1)          24,351        33,718       104,521       151,037
                        ------        ------       -------       -------
Total net
 revenue               215,635       244,736       862,185       956,513
                       -------       -------       -------       -------

Cost of
 revenue:
  Software
   licenses              3,464         4,791        11,140        17,230
  Maintenance and
   subscriptions        14,120        12,865        53,036        49,114
  Services              30,085        39,587       122,655       168,895
                        ------        ------       -------       -------
Total cost of
 revenue                47,669        57,243       186,831       235,239
                        ------        ------       -------       -------

Gross profit           167,966       187,493       675,354       721,274
                       -------       -------       -------       -------

Operating
 expenses:
  Sales and
   marketing            68,760        90,858       295,998       368,719
  Product
   development          45,756        50,455       181,383       191,547
  General and
   administrative       26,948        27,014       102,172       110,723
  Other operating
   expenses (2)        285,636        25,509       302,293        45,509
                       -------        ------       -------        ------
Total operating
 expenses              427,100       193,836       881,846       716,498

(Loss) income
 from
 operations           (259,134)       (6,343)     (206,492)        4,776
  Operating
   margin %             -120.2%         -2.6%        -23.9%          0.5%

Other income,
 net:
  Interest
   income, net           3,208         7,416        15,275        41,223
  Other                 (2,392)      (15,546)      (12,757)      (23,121)
                        ------       -------       -------       -------
Total other
 income, net               816        (8,130)        2,518        18,102
                           ---        ------         -----        ------

(Loss) income
 from
 continuing
 operations
 before taxes         (258,318)      (14,473)     (203,974)       22,878

Income tax
 (benefit)
 expense                (2,629)        3,291        10,666        35,217
                        ------         -----        ------        ------

Loss from
 continuing
 operations           (255,689)      (17,764)     (214,640)      (12,339)

Income from
 discontinued
 operations
 before taxes                -         1,473         1,904         2,758
Income tax
 benefit on
 discontinued
 operations                  -             -             -          (836)
                           ---           ---           ---          ----
Income from
 discontinued
 operations                  -         1,473         1,904         3,594

Net loss             $(255,689)     $(16,291)    $(212,736)      $(8,745)
                     =========      ========     =========       =======


Basic loss
 per share:

  Continuing
   operations           $(0.74)       $(0.05)       $(0.62)       $(0.04)

  Net loss              $(0.74)       $(0.05)       $(0.62)       $(0.02)

Weighted
 average
 shares                347,043       345,038       345,493       350,207


(1) Services includes professional services, technical support and
    training services.

(2) See Page 9 of 12 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)


                                             Oct 31, 2009 Oct 31, 2008
                                             ------------ ------------
Assets

  Current assets:
      Cash and cash equivalents                  $591,656     $680,034
      Short-term investments                      391,809      387,813
      Restricted cash                              53,033       52,701
      Receivables, net                            177,898      193,088
      Prepaid expenses                             33,915       34,365
      Current deferred tax assets                   5,521        5,685
      Other current assets                         26,747       32,006
                                                   ------       ------
  Total current assets                          1,280,579    1,385,692

  Property, plant and equipment, net              170,459      174,978
  Long-term investments                            10,303       14,972
  Goodwill                                        356,033      582,117
  Intangible assets, net                           36,621       53,320
  Deferred income taxes                            26,717       36,244
  Other assets                                     22,196       22,026
                                                   ------       ------

  Total assets                                 $1,902,908   $2,269,349
                                               ==========   ==========


Liabilities and Stockholders' Equity

  Current liabilities:
      Accounts payable                            $37,628      $36,982
      Accrued compensation                        101,031      102,317
      Other accrued liabilities                    97,154      108,929
      Income taxes payable                              -       22,563
      Senior convertible debentures                     -      125,668
      Deferred revenue                            495,245      503,174
  Total current liabilities                       731,058      899,633

  Deferred income taxes                             8,403       11,725
  Other long-term liabilities                      35,399       43,587
  Long-term deferred revenue                      193,526      226,876
                                                  -------      -------

  Total liabilities                               968,386    1,181,821

  Stockholders' equity                            934,522    1,087,528
                                                  -------    ---------

  Total liabilities and stockholders' equity   $1,902,908   $2,269,349
                                               ==========   ==========

                             Novell, Inc.
      Consolidated Unaudited Condensed Statements of Cash Flows
                            (In thousands)


                                 Fiscal                Fiscal
                              Quarter Ended          Year Ended
                              -------------          ----------
                             Oct 31,  Oct 31,    Oct 31,    Oct 31,
                              2009      2008       2009       2008
                             ------    ------     ------     ------

Cash flows from
 operating
 activities
    Net loss               $(255,689) $(16,291) $(212,736)   $(8,745)
    Adjustments to
     reconcile net
     loss to net cash
     provided by
     operating
     activities:
      Stock-based
       compensation
       expense                 5,683     8,448     25,881     33,818
      Depreciation and
       amortization            9,657    12,065     40,675     42,892
      Change in accounts
       receivable
       allowances                827      (649)       444       (254)
      Utilization of
       previously reserved
       acquired net
       operating losses        2,125         -      2,580      5,026
      Purchased in-process
       research and
       development                 -         -          -      2,700
      Net gain on sale of
       property, plant and
       equipment              (2,199)        -     (2,199)         -
      Gain on debenture
       repurchases                 -    (4,062)       (11)    (4,606)
      Gain on discontinued
       operations, before
       taxes                       -    (1,473)    (1,904)    (2,653)
      Impairment of
       investments                 -    15,536      5,466     30,024
      Gain on sale of
       previously
       impaired long-
       term investments         (300)   (1,969)      (300)    (1,969)
      Impairment of
       goodwill and
       intangible
       assets                279,135     7,664    279,135      7,664
      (Gain) loss on
       sale of
       subsidiaries                -      (117)       (16)     3,694
    Changes in
     current assets
     and liabilities,
     excluding the
     effect of
     acquisitions and
     dispositions             12,179    56,469    (68,245)   (51,721)
                              ------    ------    -------    -------

  Net cash
   provided by
   operating
   activities                 51,418    75,621     68,770     55,870
                              ------    ------     ------     ------

Cash flows from
 investing
 activities
    Purchases of
     property, plant and
     equipment                (7,324)   (9,193)   (22,087)   (37,716)
    Net proceeds from
     the sale of
     property, plant
     and equipment            10,748         -     10,748          -
    Short-term
     investment activity      (5,199)   (3,337)     5,100    355,923
    Long-term
     investment activity         300     3,020      4,209     24,757
    Change in
     restricted cash             (25)     (291)      (332)   (52,701)
    Net cash proceeds
     from sale of
     discontinued
     operations                    -     1,473      1,036        564
    Net cash proceeds
     (distributions) from
     subsidiary sales              -     6,256          -       (171)
    Cash paid for
     acquisitions, net of
     cash acquired                 -         -    (48,472)  (219,553)
    Purchases of
     intangible assets             -    (6,000)         -    (12,000)
    Other                      1,330    (9,347)     7,228     (5,793)
                               -----    ------      -----     ------

  Net cash (used
   in) provided
   by investing
   activities                   (170)  (17,419)   (42,570)    53,310
                                ----   -------    -------     ------

Cash flows from
 financing
 activities
     Issuances of
      common stock               641       679      3,566     13,297
     Excess tax
      effects from
      stock-based
      compensation                13     1,691     (2,775)    18,500
     Common stock
      repurchases/
      retirements                  -   (22,157)         -    (66,820)
     Debt (repayment)
      issuance                (4,087)    4,795     (4,658)     4,795
     Debenture
      repurchases                  -  (314,043)  (125,537)  (456,500)
                                   -  --------   --------   --------

  Net cash used in
   financing
   activities                 (3,433) (329,035)  (129,404)  (486,728)
                              ------  --------   --------   --------

Increase
 (decrease) in
 cash and cash
 equivalents                  47,815  (270,833)  (103,204)  (377,548)
Effect of foreign
 currency
 exchange rate
 fluctuations                  6,977   (22,970)    14,826    (22,237)
Cash and cash
 equivalents -
 beginning of
 period                      536,864   973,837    680,034  1,079,819
                             -------   -------    -------  ---------

Cash and cash
 equivalents - end
 of period                  $591,656  $680,034   $591,656   $680,034
                            ========  ========   ========   ========

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
                                        Ended                Ended
                                   ----------------      -------------
                                   Oct 31,   Oct 31,    Oct 31,   Oct 31,
                                    2009      2008       2009      2008
                                  --------  --------   --------  --------

GAAP (loss) income from
 operations                      $(259,134)  $(6,343) $(206,492)   $4,776
                                 ---------   -------  ---------    ------

  Adjustments:
    Stock-based compensation expense:
      Cost of revenue                  512       926      2,649     3,621
      Sales and marketing            1,659     2,734      7,015    10,134
      Product development            1,721     2,463      9,332    10,363
      General and administrative     1,791     2,325      6,885     9,700
                                     -----     -----      -----     -----
        Sub-total                    5,683     8,448     25,881    33,818
                                     -----     -----     ------    ------

    Acquisition-related intangible
     asset amortization:
      Cost of revenue                2,098     3,183      9,984     9,217
      Sales and marketing            2,706     1,341      7,296     3,771
        Sub-total                    4,804     4,524     17,280    12,988
                                     -----     -----     ------    ------

    Other operating expenses
     (income):
      Restructuring expenses         8,700    17,316     25,200    28,645
      IT outsourcing transition
       costs                             -         -        173         -
      Litigation-related expense         -       500          -     1,250
      Purchased in-process
       research and development          -         -          -     2,700
      Acquisition integration
       costs                             -       146          -     1,556
      (Gain) loss on sale of
       subsidiaries                      -      (117)       (16)    3,694
      Net gain on sale of
       property, plant and
       equipment                    (2,199)        -     (2,199)        -
      Impairment of goodwill and
       intangible assets           279,135     7,664    279,135     7,664
                                   -------     -----    -------     -----
        Sub-total                  285,636    25,509    302,293    45,509
                                   -------    ------    -------    ------


Total operating adjustments        296,123    38,481    345,454    92,315

Non-GAAP income from operations    $36,989   $32,138   $138,962   $97,091
                                   =======   =======   ========   =======
  Operating margin %                  17.2%     13.1%      16.1%     10.2%


                               Novell, Inc.
                  Unaudited Non-GAAP Adjusted Net Income
                   (In thousands, except per share data)


                                    Fiscal Quarter        Fiscal Year
                                        Ended                Ended
                                   ----------------      -------------
                                   Oct 31,   Oct 31,    Oct 31,   Oct 31,
                                    2009      2008       2009      2008
                                  --------  --------   --------  --------

GAAP net loss                    $(255,689) $(16,291) $(212,736)  $(8,745)
                                 ---------  --------  ---------   -------
  Operating adjustments
  (detailed above)                 296,123    38,481    345,454    92,315
  Non-operating expenses
   (income) adjustments:
    Gain on debenture
     repurchases                         -    (4,062)       (11)   (4,606)
    Impairment of investments            -    15,536      5,466    30,024
    Gain on sale of previously
     impaired long-term
     investments                      (300)   (1,969)      (300)   (1,969)
                                      ----    ------       ----    ------
      Sub-total                       (300)    9,505      5,155    23,449
                                      ----     -----      -----    ------

  Total pre-tax adjustments        295,823    47,986    350,609   115,764

  Income tax adjustments            (2,130)   (8,020)   (19,219)  (12,065)

  Income from discontinued
   operations, net of taxes              -    (1,473)    (1,904)   (3,594)
                                       ---    ------     ------    ------

  Total net adjustments            293,693    38,493    329,486   100,105

Non-GAAP net income and non-GAAP
 income from continuing
 operations                        $38,004   $22,202   $116,750   $91,360
                                   =======   =======   ========   =======


GAAP net loss per share             $(0.74)   $(0.05)    $(0.62)   $(0.02)
  Total adjustments detailed
   above                              0.85      0.11       0.96      0.28
                                      ----      ----       ----      ----

Non-GAAP net income per share and
 non-GAAP income from continuing
 operations per share                $0.11     $0.06      $0.34     $0.26
                                     =====     =====      =====     =====


GAAP weighted average shares       347,043   345,038    345,493   350,207

  Change from basic to diluted
   weighted average shares           1,707     1,111      2,328     1,461
                                     -----     -----      -----     -----

Non-GAAP weighted average shares   348,750   346,149    347,821   351,668
                                   =======   =======    =======   =======

Revisions were made to prior period amounts in order to conform to the
current period's presentation.

SOURCE Novell, Inc.



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