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Novell Reports Financial Results for Second Fiscal Quarter 2007


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Novell, Inc. (NASDAQ:NOVL) today announced financial results for its second fiscal quarter ended April 30, 2007. For the quarter, Novell reported net revenue of $239 million, compared to net revenue of $233 million for the second fiscal quarter 2006. The loss available to common stockholders from continuing operations in the second fiscal quarter 2007 was $110,000, or $0.00 loss per common share. This compares to income available to common stockholders from continuing operations of $2 million, or $0.00 per diluted common share, for the second fiscal quarter 2006. Foreign currency exchange rates favorably impacted total revenue by approximately $4 million and negatively impacted net income by $2 million year-over-year.

On a non-GAAP basis, which excludes stock-based compensation and certain other items, adjusted income available to common stockholders from continuing operations for the second fiscal quarter 2007 was $16 million, or $0.05 per diluted common share, which includes a $0.02 favorable tax adjustment. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $7 million, or $0.02 per diluted common share, for the second fiscal quarter 2006.

During the second fiscal quarter 2007, Novell reported $19 million of revenue from Linux* Platform Products, up 83% year-over-year, and $29 million of invoicing, up 114% year-over-year. Revenue from Identity and Access Management was $23 million, up 5% year-over-year. Revenue from Systems and Resource Management was $32 million, down 4% year-over-year. Revenue from our Workgroup business unit declined 4% from the year ago period to $84 million.

“We were pleased with the overall results this quarter. We saw continued strength in our Linux business, improvement in our Identity business and better-than-expected results in Workgroup. Additionally, we benefited from the impact of cost control measures,” said Ron Hovsepian, President and CEO of Novell. “While there remains a lot of work ahead of us, our business is moving in the right direction and we believe we are on track to achieve our fiscal 2007 exit rate operating margin target.”

Cash, cash equivalents and short-term investments were $1.8 billion at April 30, 2007, consistent with last quarter. Days sales outstanding in accounts receivable was 64 days at the end of the second fiscal quarter 2007, down from 66 days in the year ago quarter. Total deferred revenue was $700 million at the end of the second fiscal quarter 2007, up $354 million, or 102%, from the prior year. Cash flow from operations was a negative $29 million for the second fiscal quarter 2007, compared to a negative $24 million in the second fiscal quarter 2006.

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 recently concluded its self-initiated, voluntary review of its historical stock-based compensation practices, the results of which it announced in a press release on May 23, 2007. The associated SEC filing on Form 8-K, along with the press release, may be viewed online.

On May 25, 2007, Novell filed its Quarterly Reports on Form 10-Q for the fiscal quarters ended July 31, 2006 and January 31, 2007 and its Annual Report on Form 10-K for the fiscal year ended October 31, 2006 with the SEC. Copies of these filings may be accessed through Novell’s Investor Relations web site.

Financial Outlook
Novell management issues the following financial guidance:

For the full fiscal year 2007:

Net revenue is expected to be between $925 million and $955 million, adjusted to account for the divestment of the Salmon business consulting group during the second fiscal quarter 2007.
On a non-GAAP basis, adjusted income from operations is expected to be between break-even and $10 million, excluding stock-based compensation and restructuring expenses.
Novell is targeting fourth fiscal quarter 2007 exit rate operating margins, as described below, of between 5% and 7%.
For the full fiscal year 2008:

Novell is targeting fourth fiscal quarter 2008 exit rate operating margins of between 12% and 15%.
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 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, restructuring expenses, asset impairments, 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.

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 May 30, 2007, from Novell’s Investor Relations web page. 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, June 8, 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 7709752.



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