Novell Reports Preliminary Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2006
* Consolidated Unaudited Condensed Statements of Operations
* Consolidated Unaudited Condensed Balance Sheets
* Consolidated Unaudited Condensed Statements of Cashflows Statement of Cash Flows
* Unaudited Non-GAAP Adjusted Earnings Information
* Fourth Quarter 2006 Earnings Release and Full Financial Schedules
* Strong fiscal year 2006 revenue growth in key solution categories
* Linux Platform Products revenue grows 26 percent year-over-year
* Identity and Access Management revenue grows 30 percent year-over-year
* Provides financial guidance for full fiscal years 2007 and 2008
WALTHAM, Mass.—05 Dec 2006—Novell, Inc. (NASDAQ:NOVL) today announced preliminary financial results for its fourth fiscal quarter and fiscal year ended Oct. 31, 2006. These financial results are preliminary because Novell, during the third fiscal quarter, 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 for the third fiscal quarter ended July 31, 2006 and Form 10-K for the full fiscal year ended Oct. 31, 2006.
For the fourth fiscal quarter 2006, Novell reported net revenue of $245 million, compared to net revenue of $288 million for the fourth fiscal quarter 2005. The net income available to common stockholders from continuing operations in the fourth fiscal quarter 2006 was $25 million, or $0.06 per diluted common share. This compares to a loss available to common stockholders from continuing operations of $6 million, or $0.02 loss per diluted common share, for the fourth fiscal quarter 2005.
On a non-GAAP basis, which is described below, adjusted income available to common stockholders from continuing operations for the fourth fiscal quarter 2006 was $20 million, or $0.05 per diluted common share. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $32 million, or $0.07 per diluted common share, for the fourth fiscal quarter 2005.
For the full fiscal year 2006, Novell reported revenue of $967 million and net income available to common stockholders from continuing operations of $21 million, or $0.06 per diluted common share. Comparatively, revenue for the full fiscal year 2005 was $1.039 billion and net income available to common stockholders from continuing operations was $373 million, or $0.85 per diluted common share, including a $448 million net legal settlement with Microsoft.
During the fourth fiscal quarter 2006, Novell reported $13 million of revenue from Linux* Platform Products, up 32 percent year-over-year. Revenue from Identity and Access Management was $24 million, up 3 percent year-over-year. Combined revenue from Open Enterprise Server and NetWare®-related products declined 25 percent from the year ago period.
“We are pleased with the progress we made in our key growth categories of Linux and Identity in fiscal year 2006,” said Ron Hovsepian, president and CEO of Novell. “Coupled with the unprecedented Linux partnership with Microsoft just recently announced, we will add significant momentum to our Linux business. With these proof points established and with the initiatives we have begun to improve our sales model, development processes and back office efficiencies, we feel confident that we are on the right path to put Novell on target for sustained profitability in the future.”
Cash, cash equivalents and short-term investments were $1.5 billion at Oct. 31, 2006, up from $1.3 billion last quarter. Days sales outstanding in accounts receivable was 86 days at the end of the fourth fiscal quarter 2006, up from 81 days in the year ago quarter. Accounts receivable aging remains within historical ranges. Deferred revenue was $427 million at the end of the fourth fiscal quarter 2006, up $21 million, or 5 percent, from the prior year. Cash flow from operations was $62 million for the fourth fiscal quarter 2006, up from $58 million from the fourth fiscal quarter 2005.
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 on-going. Novell expects to file its Form 10-Q report for the third fiscal quarter ended July 31, 2006 and Form 10-K report for the full fiscal year ended Oct. 31, 2006 following the conclusion of the review.
Update on Third Fiscal Quarter 2006
Because the financial results for the third fiscal quarter ended July 31, 2006 remain preliminary, an increase of $9 million in accrued liabilities as a result of a change in estimate identified during the fourth fiscal quarter 2006 must be recognized as an expense in the third fiscal quarter. As a result, operating expenses increased by $9 million, and the net loss available to common stockholders from continuing operations in the third fiscal quarter 2006 increased from the previously reported $3 million, or $0.01 loss per diluted common share, to $10 million, or $0.03 loss per diluted common share. Third fiscal quarter 2006 non-GAAP adjusted income available to common stockholders from continuing operations of $20 million, or $0.05 per diluted common share, remained unchanged.
Novell management provides 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 expense from stock-based compensation. However, in fiscal year 2007, Novell anticipates it will no longer exclude stock-based compensation expense from its non-GAAP financial measures.
* 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 available to common stockholders from continuing operations and adjusted diluted income 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 available to common stockholders from continuing operations to be after-tax income generated from continuing operations excluding certain non-recurring or non-core items such as, but not limited to, stock-based compensation for fiscal year 2006, 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.
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® 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 Dec. 5, 2006, 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, Dec. 12, 2006. 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 9942446.
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,” 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, Identity and Access Management and Resource Management strategies, Novell’s ability to take a competitive position in the Linux, Identity and Access Management 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 time of such conclusions) concerning matters relating to the company’s 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 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 and full fiscal year 2006 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 U.S. Securities and Exchange Commission (“SEC”) on a timely basis, our conclusions on the effectiveness of our internal control over financial reporting and disclosure controls and procedures and 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.
Novell, Inc. (Nasdaq: NOVL) 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 .
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.
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