Novell Reports Preliminary Financial Results for First Fiscal Quarter 2007 - Linux Platform Products recognized revenue grows 46% year-over-year,

invoicing revenue grows 659%

- Balance sheet strengthened through increased operating cash flow



    WALTHAM, Mass., March 1 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq:  
 NOVL) today announced preliminary financial results for its first fiscal
 quarter ended Jan. 31, 2007. These financial results are preliminary
 because Novell, during the third fiscal quarter of 2006, began a
 self-initiated, voluntary review of the company's historical stock-based
 compensation practices and related potential accounting impact. The
 financial results reported today do not take into account any adjustments
 that may be required in connection with the completion of the stock-based
 compensation review and should be considered preliminary until Novell files
 its Form 10-Q report for the third fiscal quarter ended July 31, 2006, its
 Form 10-K report for the full fiscal year ended Oct. 31, 2006, and its Form
 10-Q report for the first fiscal quarter ended Jan. 31, 2007.
     Financial Results
     For the first fiscal quarter 2007, Novell reported net revenue of $230
 million, compared to net revenue of $242 million for the first fiscal
 quarter 2006. The loss available to common stockholders from continuing
 operations in the first fiscal quarter 2007 was $20 million, or $0.06 loss
 per common share. This compares to income available to common stockholders
 from continuing operations of $4 million, or $0.01 per diluted common
 share, for the first fiscal quarter 2006.
     On a non-GAAP basis, which includes stock-based compensation as
 described below, adjusted loss available to common stockholders from
 continuing operations for the first fiscal quarter 2007 was $3 million, or
 $0.01 loss per common share. This compares to non-GAAP adjusted income
 available to common stockholders from continuing operations of $4 million,
 or $0.01 per diluted common share, for the first fiscal quarter 2006.
     During the first fiscal quarter 2007, Novell reported $15 million of
 revenue from Linux* Platform Products, up 46 percent year-over-year, and
 $91 million of invoicing, up 659% year-over-year. Revenue from Identity and
 Access Management was $24 million, down 7 percent year-over-year. Combined
 revenue from Open Enterprise Server and products related to NetWare(R)
 declined 18 percent from the year ago period.
     "We are very pleased with our first quarter Linux results and
 momentum," said Ron Hovsepian, President and CEO of Novell. "We have made
 good progress toward implementing our strategic initiatives and achieving
 our key fiscal year 2007 milestones. Overall, our quarterly results were
 mixed and we will need to improve our execution in our identity, security
 and systems management businesses. We feel confident that we are on the
 right path to put Novell on target for sustained profitability."
     Cash, cash equivalents and short-term investments were $1.8 billion at
 January 31, 2007, up from $1.5 billion last quarter. Days sales outstanding
 in accounts receivable was 57 days at the end of the first fiscal quarter
 2007, down from 59 days in the year ago quarter. Deferred revenue was $728
 million at the end of the first fiscal quarter 2007, up $361 million, or 98
 percent, from the prior year. Cash flow from operations was $348 million
 for the first fiscal quarter 2007, up from $25 million from the first
 fiscal quarter 2006. Both deferred revenue and cash flow from operations
 were up from the prior year due to the Microsoft agreement completed in the
 quarter.
     Full details on Novell's reported results, including a reconciliation
 of the non-GAAP adjusted results, are included in the financial schedules
 that are a part of this release.
     Update on Stock-Based Compensation Review
     Novell's previously announced, self-initiated review of its historical
 stock-based compensation practices, which is being conducted by the Audit
 Committee of its Board of Directors with the assistance of independent
 outside counsel, is ongoing. Novell expects to file its Form 10-Q report
 for the third fiscal quarter ended July 31, 2006, its Form 10-K report for
 the full fiscal year ended October 31, 2006, and its Form 10-Q report for
 the first fiscal quarter ended Jan. 31, 2007, following the conclusion of
 the review.
     Update on Preliminary Full Fiscal Year 2006 Results
     Because of the stock-based compensation review, the financial results
 of the third and fourth fiscal quarters 2006 and full fiscal year 2006
 remain preliminary. We are required to revise results for those periods as
 a result of material changes in estimates. Accordingly, an increase of $15
 million in other accrued liabilities as a result of a change in estimate
 identified during the first fiscal quarter 2007 must be recognized as an
 expense in the third fiscal quarter 2006. Similarly, a decrease of $2
 million in accrued compensation as a result of a change in estimate
 identified during the first fiscal quarter 2007 must be recognized as a
 reduction of expense in the fourth fiscal quarter 2006. As a result, the
 following changed in the full fiscal year 2006:
     -- Cost of revenue and operating expenses decreased a combined $13
        million,
     -- Income available to common stockholders from continuing operations
        decreased from $21 million, or $0.06 per diluted common share, to
        $7 million, or $0.02 per diluted common share, and
     -- Non-GAAP adjusted income available to common stockholders from
        continuing operations of $29 million increased to $30 million, and
        adjusted income per diluted common share of $0.08 remained unchanged.
 
     Financial Outlook
     Novell management reiterates the following financial guidance:
 
     For the full fiscal year 2007:
 
     -- Net revenue is expected to be between $945 million and $975 million.
     -- On a non-GAAP basis, adjusted income from operations is expected to be
        between breakeven and $10 million, excluding an estimated $35 million
        to $45 million in stock-based compensation expense.
     -- Novell is targeting fourth fiscal quarter 2007 exit rate operating
        margins, as described below, of between 5 and 7 percent.
 
     For the full fiscal year 2008:
     -- Novell is targeting fourth fiscal quarter 2008 exit rate operating
        margins of between 12 and 15 percent.
     Exit rate operating margins are defined as an annualized run rate
 expense level at the end of the period that, when compared to the full
 fiscal year's revenue, would result in a pro forma operating margin for the
 year.
     Non-GAAP Financial Measures
     To supplement Novell's preliminary consolidated unaudited condensed
 financial statements presented in accordance with GAAP and to better
 reflect comparative quarter-over-quarter and year-over-year operating
 performance, Novell uses non-GAAP financial measures of adjusted diluted
 income (loss) available to common stockholders from continuing operations
 and adjusted diluted income (loss) per common share from continuing
 operations, which reflect the exclusion of certain expenses and gains, and
 adjusted diluted weighted average shares outstanding. Novell's financial
 outlook uses a non-GAAP income from operations measure. These non-GAAP
 financial measures do not replace the presentation of Novell's GAAP
 financial results but are provided to improve overall understanding of
 current financial performance and prospects for the future.
     Novell considers non-GAAP adjusted diluted income (loss) available to
 common stockholders from continuing operations to be after-tax income
 (loss) generated from continuing operations excluding certain non-recurring
 or non-core items such as, but not limited to, restructuring expenses,
 asset impairments, actual and estimated litigation judgments and
 settlements, the write-off of acquired in-process research and development,
 and gains (losses) on the sale of business operations, long-term
 investments and property, plant and equipment.
     In the full fiscal year 2006, Novell excluded stock-based compensation
 expense from non-GAAP adjusted diluted income (loss) available to common
 stockholders from continuing operations for transition purposes following
 the adoption of FAS 123R, "Accounting for Stock-Based Compensation," to
 provide investors with an easier comparison to the prior year's
 performance. Beginning in the first fiscal quarter 2007, Novell no longer
 excludes stock-based compensation expense from its non-GAAP financial
 measures. Accordingly, the fiscal year 2006 non-GAAP financial measures
 were revised to include stock-based compensation for comparative purposes
 to the current year.
     Novell does not provide financial guidance for GAAP financial measures
 because items identified as excluded from non-GAAP financial measures are
 difficult to forecast.
     A summary of Novell's vision, mission and strategy can be accessed on
 the Novell(R) Web site at: http://www.novell.com/company/ir/qresults/.
     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 March 1, 2007, 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 Web site approximately two hours after
 its conclusion, and will be available for telephone playback through
 midnight ET, March 9, 2007. 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 8070024.
     A copy of this press release is posted on Novell's Web site at:
 http://www.novell.com/company/ir/qresults/.
     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, benefits and
 synergies of the company's brands and strategies, future opportunities and
 the growth of the market for Identity and Access Management and Linux
 Platform Products. 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 realize the benefits anticipated from the Microsoft
 transaction, 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, the final
 conclusions of the Audit Committee (and the timing of such conclusions)
 concerning matters relating to the company's review of its historical
 stock-based compensation practices, and the other factors described in
 Novell's Annual Report on Form 10-K filed with the Securities and Exchange
 Commission ("SEC") on Jan. 10, 2006. 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.
     There can be no assurance that the outcome of the review by the
 company's Audit Committee of the company's past stock-based compensation
 practices and the related potential accounting impact will not result in
 changes in the preliminary financial results for the third and fourth
 fiscal quarter 2006, the full fiscal year 2006, the first fiscal quarter
 2007 or a restatement of financial results provided by the company for any
 historical period. In addition, the review and possible conclusions may
 require additional expenses to be recorded, may continue to adversely
 affect our ability to file required reports with the SEC on a timely basis,
 may change our conclusions on the effectiveness of our internal control
 over financial reporting and disclosure controls and procedures and may
 affect our ability to meet the requirements of the NASDAQ Stock Market for
 continued listing of our shares; and may result in claims and proceedings
 relating to such matters, including shareholder litigation and actions by
 the SEC and/or other governmental agencies and negative tax or other
 implications for the company resulting from any accounting adjustments or
 other factors.
     About Novell
     Novell, Inc. delivers infrastructure software for the Open Enterprise.
 We are a leader in enterprise-wide operating systems based on Linux and
 open source and the security and systems management services required to
 operate mixed IT environments. We help our customers minimize cost,
 complexity and risk, allowing them to focus on innovation and growth. For
 more information, visit http://www.novell.com.
     NOTE: Novell and NetWare are registered trademarks of Novell, Inc. in
 the United States and other countries. * Linux is a registered trademark of
 Linus Torvalds. All other third-party trademarks are the property of their
 respective owners.
                               Novell, Inc.
         Consolidated Unaudited Condensed Statements of Operations
                               (Preliminary)
                   (In thousands, except per share data)
 
 
                                                  Fiscal Quarter Ended
                                            Jan 31, 2007         Jan 31, 2006
     Net revenue:
       Software licenses                       $38,351              $42,102
       Maintenance and services                191,225              200,192
     Total net revenue                         229,576              242,294
 
     Cost of revenue:
       Software licenses                         4,227                4,545
       Maintenance and services                 69,956               76,778
     Total cost of revenue                      74,183               81,323
 
     Gross profit                              155,393              160,971
 
     Operating expenses:
       Sales and marketing                      90,940               88,193
       Product development                      46,433               43,724
       General and administrative               25,985               28,801
     Total operating expenses before other     163,358              160,718
 
     Income (loss) from operations before
      other operating expenses (income)         (7,965)                 253
 
     Other operating expenses (income) (1)      23,334               (1,000)
 
     Income (loss) from operations             (31,299)               1,253
 
     Other income, net                          18,059               12,978
 
     Income (loss) from continuing
      operations, before income taxes          (13,240)              14,231
 
     Income tax expense                          6,672               10,001
 
     Income (loss) from continuing
      operations                               (19,912)               4,230
 
     Loss from discontinued operations,
      before income taxes                            -               (1,043)
     Income tax expense                              -                1,322
     Loss from discontinued operations               -               (2,365)
 
     Net income (loss)                        $(19,912)              $1,865
 
 
     Income (loss) available to common
      stockholders - diluted:
 
       Continuing operations                  $(19,912)              $4,167
 
       Net income (loss)                      $(19,912)              $1,811
 
 
     Income (loss) per share available
      to common stockholders - diluted:
 
       Continuing operations                    $(0.06)               $0.01
 
       Net income (loss)                        $(0.06)               $0.00
 
 
     Weighted average shares - diluted         345,522              394,534
 
 
     (1) See Page 10 of 15 for a detail of other operating expenses (income).
 
     Certain reclassifications, none of which affected net income (loss), were
     made to prior period amounts in order to
     conform to the current period's presentation.
 
     Stock-based compensation expense recorded in above amounts:
 
                                                    Fiscal Quarter Ended
                                               Jan 31, 2007      Jan 31, 2006
 
     Cost of revenue                               $1,017            $1,062
 
       Sales and marketing                          1,928             3,532
       Product development                          2,117             2,637
       General and administrative                   1,404             6,271
     Total operating expenses                       5,449            12,440
 
     Discontinued operations                           --               193
 
       Total stock-based compensation
        expense                                    $6,466           $13,695
 
 
                                   Novell, Inc.
           Consolidated Unaudited Condensed Balance Sheets (Preliminary)
                                  (In thousands)
 
 
                                                Jan 31, 2007      Oct 31, 2006
     Assets
 
     Current assets:
         Cash and cash equivalents               $1,025,478          $675,787
         Short-term investments                     790,033           790,500
         Receivables, net                           146,291           233,986
         Prepaid expenses                            38,099            32,328
         Other current assets                        27,254            28,524
     Total current assets                         2,027,155         1,761,125
 
     Property, plant and equipment, net             182,721           184,084
     Long-term investments                                -             2,263
     Goodwill                                       420,275           424,701
     Intangible assets, net                          38,980            40,404
     Deferred income taxes                            4,586             4,770
     Other assets                                    32,391            32,376
 
     Total assets                                $2,706,108        $2,449,723
 
 
     Liabilities and Stockholders' Equity
 
     Current liabilities:
         Accounts payable                           $41,592           $44,419
         Accrued compensation                        71,031           103,710
         Other accrued liabilities                  101,941           106,837
         Income taxes payable                        47,560            49,600
         Deferred revenue                           469,791           426,971
     Total current liabilities                      731,915           731,537
 
     Deferred income taxes                            4,119             4,186
     Deferred revenue - long-term                   258,573                --
     Senior convertible debentures                  600,000           600,000
 
     Total liabilities                            1,594,607         1,335,723
 
     Preferred stock                                      -             9,350
 
     Stockholders' equity                         1,111,501         1,104,650
 
     Total liabilities and stockholders'
      equity                                     $2,706,108        $2,449,723
 
 
     Amounts reported as 'preliminary' for the fourth fiscal quarter ended
     October 31, 2006 have been updated for a known change in estimate.  Also,
     reclassifications, none of which affected net income (loss), were made to
     the prior period amounts in order to conform to the current period's
     presentation.
 
 
                                   Novell, Inc.
      Consolidated Unaudited Condensed Statements of Cash Flows (Preliminary)
                                  (In thousands)
 
 
                                                       Fiscal Quarter Ended
                                                  Jan 31, 2007     Jan 31, 2006
 
     Cash flows from operating activities:
         Net income (loss)                          $(19,912)          $1,865
         Adjustments to reconcile net
          income (loss) to net cash
          provided by operating activities:
           Stock-based compensation expense            6,466           13,695
           Depreciation and amortization              11,164           11,511
           Changes in accounts receivable
            allowances                                   773           (2,973)
           Utilization of previously reserved
            acquired net operating losses              2,471              544
           Net (gain) loss on impaired long-term
            investments                               (1,738)             387
           Gain on sale of venture capital
            partnership interests                     (3,591)               -
           Impairment of goodwill and intangible
            assets                                    10,848                -
           Changes in current assets and
            liabilities, excluding the effect
            of acquisitions and dispositions         341,047               94
 
         Net cash provided by operating
          activities                                 347,528           25,123
 
     Cash flows from financing activities:
           Issuance of common stock, net               7,385            9,876
           Excess tax benefits from stock-based
            compensation                               1,986            4,039
           Payment of cash dividends on Series
            B Preferred Stock                             (5)               -
 
         Net cash provided by financing
          activities                                   9,366           13,915
 
     Cash flows from investing activities:
           Purchases of property, plant and
            equipment                                 (4,958)          (7,603)
           Short-term investment activity                132            4,474
           Long-term investment activity               1,738             (256)
           Cash paid for equity share of Open
            Invention Network, LLC                         -           (4,225)
           Proceeds from sale of venture capital
            partnership interests                      4,964                -
           Cash paid for acquisition of Redmojo       (9,727)               -
           Other                                         648            2,462
 
         Net cash used in investing
          activities                                  (7,203)          (5,148)
 
     Increase in cash and cash equivalents           349,691           33,890
 
     Cash and cash equivalents - beginning
      of period                                      675,787          811,238
 
     Cash and cash equivalents - end of
      period                                      $1,025,478         $845,128
 
 
     Certain reclassifications, none of which affected net income (loss), were
     made to prior period amounts in order to conform to the current period's
     presentation.
 
 
                                       Novell, Inc.
              Unaudited Non-GAAP Adjusted Earnings Information (Preliminary)
                           (In thousands, except per share data)
 
 
                                                      Fiscal Quarter Ended
                                                 Jan 31, 2007      Jan 31, 2006
       GAAP diluted income (loss)
        available to common stockholders
        from continuing operations                 $(19,912)           $4,167
 
         Pre-tax adjustments:
 
           Other operating expenses (income):
             Restructuring expenses                   7,351            (1,000)
             Litigation-related income                 (543)                -
             Impairment of goodwill and
              intangible assets                      10,848                 -
             Stock-based compensation review
              expenses                                5,678                 -
               Sub-total                             23,334            (1,000)
 
           Non-operating expenses (income):
             Gain on sale of venture
              capital partnership interests          (3,591)                -
             Net (gain) loss on impaired
              long-term investments                  (1,738)              387
               Sub-total                             (5,329)              387
 
         Total pre-tax adjustments                   18,005              (613)
 
         Income tax adjustments                      (1,567)              756
 
         Diluted income (loss)
          adjustments:
           Allocation of earnings to
            preferred stockholders                        -                (1)
 
         Total net adjustments                       16,438               142
 
       Non-GAAP diluted income (loss)
        available to common stockholders
        from continuing operations                  $(3,474)           $4,309
 
 
       GAAP diluted income (loss) per
        common share from continuing
        operations                                   $(0.06)            $0.01
           Adjustments detailed above                  0.05              0.00
 
       Non-GAAP diluted income (loss) per
        common share from continuing
        operations                                   $(0.01)            $0.01
 
 
       GAAP diluted weighted average
        shares from continuing
        operations                                  345,522           394,534
 
         Change in dilution from assumed:
           Stock option exercises                         -                 -
 
       Non-GAAP diluted weighted average
        shares                                      345,522           394,534
 
 
       Revisions were made to prior period amounts in order to include stock-
       based compensation in the non-GAAP adjusted earnings information and
       conform to the current period's presentation.
 
 

SOURCE Novell, Inc.
RELATED LINKS
http://www.novell.com

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