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Novell Reports Financial Results for First Fiscal Quarter 2010
Feb 25, 2010 (03:02 PM EST)


- 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.