NOVL Novell, Inc. (MM)

- Fiscal 2008 product revenue increased 8% year-over-year WALTHAM, Mass., Dec. 4 /PRNewswire-FirstCall/ -- Novell, Inc. (NASDAQ:NOVL) today announced financial results for its fourth fiscal quarter and full fiscal year ended October 31, 2008. For the quarter, Novell reported net revenue of $245 million, consistent with the fourth fiscal quarter of 2007. Loss from operations for the fourth fiscal quarter of 2008 was $6 million, compared to a loss from operations of $13 million for the fourth fiscal quarter of 2007. Net loss in the fourth fiscal quarter of 2008 was $16 million, or $(0.05) per share, which included a $14 million impairment charge related to the Company's auction-rate securities. This compares to a net loss of $18 million, or $(0.05) per share, for the fourth fiscal quarter of 2007. In the fourth fiscal quarter of 2008, foreign currency exchange rates did not materially impact net revenue and favorably impacted operating expenses and 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 2008 was $32 million. This compares to non-GAAP income from operations of $21 million in the year-ago quarter. Non-GAAP net income for the fourth fiscal quarter of 2008 was $20 million, or $0.06 per share. This compares to non-GAAP net income of $23 million, or $0.07 per share, for the fourth fiscal quarter of 2007. For the full fiscal year 2008, Novell reported net revenue of $957 million and income from operations of $5 million. Comparatively, net revenue for the full fiscal year 2007 was $932 million and the loss from operations was $56 million. Net loss for the full fiscal year 2008 was $9 million, or $(0.02) per share, which included a $29 million impairment charge related to the Company's auction-rate securities. This compares to a net loss of $44 million, or $(0.13) per share, for the full fiscal year 2007. In the full fiscal year 2008, foreign currency exchange rates favorably impacted net revenue by approximately $22 million, negatively impacted operating expenses by approximately $22 million and did not materially impact income from operations compared to the same period last year. On a non-GAAP basis, income from operations for the full fiscal year 2008 was $97 million. This compares to non-GAAP income from operations of $46 million a year ago. Non-GAAP net income for the full fiscal year 2008 was $93 million, or $0.27 per share. This compares to non-GAAP net income of $66 million, or $0.19 per share, for the full fiscal year 2007. For the fourth fiscal quarter of 2008, product revenue increased 6% which was offset by a services revenue decline of 26%, resulting in total revenue that is consistent with the same period last year. Novell reported $36 million of product revenue from Open Platform Solutions, of which $33 million was from Linux Platform Products, up 33% compared to the same period last year. Product revenue from Identity and Security Management was $37 million, of which Identity and Access Management was $35 million, up 11% compared to the same period last year. Product revenue from Systems and Resource Management was $45 million, up 15% compared to the same period last year. Workgroup product revenue of $92 million decreased 6% compared to the same period last year. For the full fiscal year 2008, product revenue increased 8% which was partially offset by a services revenue decline of 20% such that total revenue increased 3% compared to the full fiscal year 2007. Novell reported $129 million of product revenue from Open Platform Solutions, of which $120 million was from Linux Platform Products, up 38% compared to last year. Product revenue from Identity and Security Management was $137 million, of which Identity and Access Management was $124 million, up 15% compared to last year. Product revenue from Systems and Resource Management was $170 million, up 15% compared to last year. Workgroup product revenue of $366 million decreased 2% compared to last year. "I am pleased with our fourth quarter and annual product revenue and non- GAAP operating margin results. We have substantially completed our two-year transformation, repositioning Novell as a leader in infrastructure software," said Ron Hovsepian, President and CEO of Novell. "We have a large, recurring revenue stream, a strong balance sheet, expanding partnerships and excellent products in broad and growing markets which we believe positions us well in this challenging environment." Cash, cash equivalents and short-term investments were $1.1 billion at October 31, 2008, down from $1.9 billion at October 31, 2007, primarily due to the repurchase of a significant portion of the debentures, the acquisition of PlateSpin and the stock repurchase program. Days sales outstanding in accounts receivable was 72 days at the end of the fourth fiscal quarter of 2008, down from 77 days at the end of the year-ago quarter. Total deferred revenue was $730 million at the end of the fourth fiscal quarter of 2008, down from $768 million at the end of the year-ago quarter. Cash flow from operations was $67 million for the fourth fiscal quarter of 2008. This compares to cash flow from operations of $77 million in the fourth fiscal quarter of 2007. With regard to the Company's previously announced share repurchase program, Novell repurchased four million shares of common stock at a cost of $22 million during the quarter. During the full fiscal year 2008, the Company repurchased 12 million shares at a cost of $67 million. The Company currently has $33 million remaining under the existing share repurchase program, and, going forward intends to use the program to maintain a steady level of shares outstanding. During the quarter, Novell used $314 million of cash to repurchase a portion of its outstanding 0.5% senior convertible debentures. During the full fiscal year 2008, $457 million of cash was used for these repurchases. Full details on Novell's reported results, including a reconciliation of the non-GAAP results, are included in the financial schedules that are a part of this release. Financial Outlook Novell management remains committed to long-term sustainable profitability. For the full fiscal year 2008, Novell achieved non-GAAP operating margin of 10%. Going forward, Novell management expects to improve on these results, but in light of these uncertain economic times, is targeting no less than 10% non-GAAP operating margin in the full fiscal year 2009. Conference Call Notification and Web Access Detail A live Webcast of a Novell conference call to discuss the quarter and the year will be broadcast at 5:00 PM ET December 4, 2008, 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 Novell Web site approximately two hours after its conclusion for 12 months. The call will also be available for telephone playback through midnight ET, December 19, 2008. 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 71160968. A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/. Non-GAAP Financial Measures We supplement our consolidated unaudited condensed financial statements presented in accordance with GAAP with certain non-GAAP financial measures. These non-GAAP measures include adjusted income from operations, adjusted operating margin, adjusted income from continuing operations, adjusted net income, adjusted income per share from continuing operations and adjusted net income per share. We provide non-GAAP financial measures to enhance an overall understanding of our current financial performance and prospects for the future and to enable investors to evaluate our performance in the same way that management does. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources, and determine bonuses. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are excluded from most analysts' consensus estimates, that are unusual, and/or that arise outside of the ordinary course of business, such as, but not limited to, those related to stock-based compensation, acquisition-related intangible asset amortization, restructuring, asset impairments, litigation judgments and settlements, purchased in-process research and development, and the sale of business operations, long-term investments, and property, plant and equipment. Legal Notice Regarding Forward-Looking Statements This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act, including those related to future financial and operating results, future opportunities, the benefits and synergies of the company's brands, strategies and acquisitions, and the growth of the Linux Platform Products, Identity and Access Management, and Systems and Resource Management markets. 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 transform its business through the implementation of its strategic plan, Novell's ability to realize the benefits anticipated from the Microsoft transactions, including the pricing of any renewals of Microsoft certificates previously sold, and other transactions, Novell's ability to realize the benefits anticipated from its restructuring plan, and the expected charges to be incurred and payments to be made under the restructuring plan, Novell's ability to achieve its expense targets, 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, and the other factors described in Novell's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2007. 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. About Novell Novell, Inc. (NASDAQ:NOVL) delivers the best engineered, most interoperable Linux* platform and a portfolio of integrated IT management software that helps 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 http://www.novell.com/. Novell and the Novell logo are registered trademarks of Novell, Inc. in the United States and other countries. *All third party marks are the property of their respective owners. Novell, Inc. Consolidated Unaudited Condensed Statements of Operations (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year Ended Oct 31, Oct 31, Oct 31, Oct 31, 2008 2007 2008 2007 Net revenue: Software licenses $51,362 $51,037 $189,655 $176,107 Maintenance and subscriptions 158,776 147,108 613,063 564,354 Services (1) 34,598 46,791 153,795 192,038 Total net revenue 244,736 244,936 956,513 932,499 Cost of revenue: Software licenses 4,948 5,225 17,951 18,505 Maintenance and subscriptions 13,445 13,406 51,679 49,515 Services 39,454 46,083 167,994 192,234 Total cost of revenue 57,847 64,714 237,624 260,254 Gross profit 186,889 180,222 718,889 672,245 Operating expenses: Sales and marketing 88,938 84,327 361,832 346,777 Product development 52,303 55,134 198,149 208,370 General and administrative 26,482 29,527 108,623 111,006 Other operating expenses (2) 25,509 24,525 45,509 61,860 Total operating expenses 193,232 193,513 714,113 728,013 Income (loss) from operations (6,343) (13,291) 4,776 (55,768) Operating margin % -2.6% -5.4% 0.5% -6.0% Other income (loss), net: Interest income, net 7,416 16,724 41,223 62,134 Other (15,546) 213 (23,121) 2,049 Total other income (loss), net (8,130) 16,937 18,102 64,183 Income (loss) from continuing operations, before income taxes (14,473) 3,646 22,878 8,415 Income tax expense 3,291 12,809 35,217 34,691 Loss from continuing operations (17,764) (9,163) (12,339) (26,276) Income (loss) from discontinued operations, before income taxes 1,473 (8,785) 2,758 (18,253) Income tax benefit on discontinued operations - - (836) (69) Income (loss) from discontinued operations 1,473 (8,785) 3,594 (18,184) Net loss $(16,291) $(17,948) $(8,745) $(44,460) Loss per share: Continuing operations $(0.05) $(0.03) $(0.04) $(0.08) Net loss $(0.05) $(0.05) $(0.02) $(0.13) Weighted average shares 345,038 350,017 350,207 347,552 (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, 2008 Oct 31, 2007 Assets Current assets: Cash and cash equivalents $680,034 $1,079,819 Short-term investments 387,813 777,818 Restricted cash 52,701 - Receivables, net 193,088 208,318 Prepaid expenses 34,365 53,316 Deferred income taxes 5,685 - Other current assets 32,006 35,065 Total current assets 1,385,692 2,154,336 Property, plant and equipment, net 174,978 180,537 Long-term investments 14,972 37,304 Goodwill 582,117 404,612 Intangible assets, net 53,320 33,572 Deferred income taxes 36,244 14,518 Other assets 22,026 29,515 Total assets $2,269,349 $2,854,394 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $36,982 $45,135 Accrued compensation 102,317 112,794 Other accrued liabilities 108,929 122,850 Income taxes payable 22,563 46,724 Senior convertible debentures 125,668 - Deferred revenue 503,174 494,615 Total current liabilities 899,633 822,118 Deferred income taxes 11,725 884 Other long-term liabilities 43,587 - Long-term deferred revenue 226,876 273,066 Senior convertible debentures - 600,000 Total liabilities 1,181,821 1,696,068 Stockholders' equity 1,087,528 1,158,326 Total liabilities and stockholders' equity $2,269,349 $2,854,394 Novell, Inc. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands) Fiscal Quarter Ended Fiscal Year Ended Oct 31, Oct 31, Oct 31, Oct 31, 2008 2007 2008 2007 Cash flows from operating activities Net loss $(16,291) $(17,948) $(8,745) $(44,460) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation expense 8,448 8,352 33,818 31,841 Stock-based compensation modification expense - - - 2,475 Depreciation and amortization 12,065 9,275 42,892 40,438 Change in accounts receivable allowances (682) (844) (261) (1,722) Utilization of previously reserved acquired net operating losses - 9 5,026 4,844 SUSE purchase price tax adjustment - 24,677 - 24,677 Purchased in-process research and development - - 2,700 - Gain on debenture repurchases (4,062) - (4,606) - (Gain) loss on discontinued operations, before taxes (1,473) 8,855 (2,653) 19,075 Impairment of investments 15,286 - 30,024 - Gain on sale of previously impaired long-term investments (1,719) (1,179) (1,969) (2,917) Gain on sale of venture capital funds - - - (3,591) Impairment of intangible assets 7,664 - 7,664 3,851 (Gain) loss on sale of subsidiaries (117) (1,200) 3,694 (1,200) Changes in current assets and liabilities, excluding acquisitions and dispositions 47,546 46,897 (54,777) 349,237 Net cash provided by operating activities 66,665 76,894 52,807 422,548 Cash flows from investing activities Purchases of property, plant and equipment (9,193) (7,756) (37,716) (25,235) Short-term investment activity (3,337) 52,096 355,923 (20,237) Long-term investment activity 3,019 1,179 24,757 2,917 Cash restricted due to litigation (291) - (52,701) - Net proceeds from sale of subsidiaries and discontinued operations 7,729 1,200 393 1,983 Proceeds from sale of venture capital funds - - - 4,964 Net cash paid for acquisitions - (19,977) (219,553) (29,704) Purchases of intangible assets (6,000) - (12,000) (1,175) Other (23,134) 8,045 (19,769) 16,485 Net cash (used in) provided by investing activities (31,207) 34,787 39,334 (50,002) Cash flows from financing activities Issuance of common stock, net 453 4,017 8,099 18,387 Excess tax effects from stock-based compensation 1,691 6,742 18,500 13,099 Common stock repurchases/retirements (22,157) - (66,820) - Issuance of debt 4,795 - 4,795 - Debenture repurchases (314,043) - (456,500) - Net cash (used in) provided by financing activities (329,261) 10,759 (491,926) 31,486 (Decrease) increase in cash and cash equivalents (293,803) 122,440 (399,785) 404,032 Cash and cash equivalents - beginning of period 973,837 957,379 1,079,819 675,787 Cash and cash equivalents - end of period $680,034 $1,079,819 $680,034 $1,079,819 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 Fiscal Year Ended Oct 31, Oct 31, Oct 31, Oct 31, 2008 2007 2008 2007 GAAP income (loss) from operations $(6,343) $(13,291) $4,776 $(55,768) Adjustments: Stock-based compensation expense: Cost of revenue 934 1,184 3,658 4,425 Sales and marketing 2,735 2,631 10,134 9,723 Product development 2,462 2,595 10,363 9,964 General and administrative 2,317 1,942 9,663 7,729 Sub-total 8,448 8,352 33,818 31,841 Acquisition-related intangible asset amortization: Cost of revenue 3,184 1,191 9,218 5,107 Sales and marketing 1,341 350 3,771 2,740 Product development - - - 227 Sub-total 4,525 1,541 12,989 8,074 Other operating expenses (income): Restructuring expenses 17,316 25,206 28,645 43,097 Purchased in-process research and development - - 2,700 - Litigation-related expense (income) 500 - 1,250 (93) Acquisition integration costs 146 - 1,556 - (Gain) loss on sale of subsidiaries (117) (1,200) 3,694 (1,200) Impairment of intangible assets 7,664 - 7,664 3,851 Stock-based compensation review expenses - 519 - 16,205 Sub-total 25,509 24,525 45,509 61,860 Total operating adjustments 38,482 34,418 92,316 101,775 Non-GAAP income from operations $32,139 $21,127 $97,092 $46,007 Operating margin % 13.1% 8.6% 10.2% 4.9% Novell, Inc. Unaudited Non-GAAP Adjusted Net Income (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year Ended Oct 31, Oct 31, Oct 31, Oct 31, 2008 2007 2008 2007 GAAP net loss $(16,291) $(17,948) $(8,745) $(44,460) Operating adjustments (detailed above) 38,482 34,418 92,316 101,775 Non-operating expenses (income) adjustments: Gain on sale of venture capital funds - - - (3,591) Gain on debenture repurchases (4,062) - (4,606) - Impairment of investments 15,286 - 30,024 - Gain on sale of previously impaired long-term investments (1,719) (1,179) (1,969) (2,917) Sub-total 9,505 (1,179) 23,449 (6,508) Total pre-tax adjustments 47,987 33,239 115,765 95,267 Income tax adjustments (9,881) (688) (10,215) (3,150) Income (loss) from discontinued operations, net of taxes (1,473) 8,785 (3,594) 18,184 Total net adjustments 36,633 41,336 101,956 110,301 Non-GAAP net income and non-GAAP income from continuing operations $20,342 $23,388 $93,211 $65,841 GAAP net loss per share $(0.05) $(0.05) $(0.02) $(0.13) Total adjustments detailed above 0.11 0.12 0.29 0.32 Non-GAAP net income per share and non-GAAP income from continuing operations per share $0.06 $0.07 $0.27 $0.19 GAAP weighted average shares 345,038 350,017 350,207 347,552 Change from basic to diluted weighted average shares 1,111 2,426 1,461 2,279 Non-GAAP weighted average shares 346,149 352,443 351,668 349,831 Revisions were made to prior period amounts in order to conform to the current period's presentation. DATASOURCE: Novell, Inc. CONTACT: Press, Ian Bruce, +1-781-464-8034, , or Investor Relations, Susan Walker White, 1-800-317-3195, , both of Novell, Inc. Web site: http://www.novell.com/

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