Novell reports third fiscal quarter 2002 results

Novell, Inc. (NASDAQ:NOVL) today reported revenue of $282 million and earnings of $0.03 per share for its third fiscal quarter ended July 31, 2002. Excluding the impact of a $3 million charge for purchased in-process research and development, the company posted earnings of $0.04 per share for its third fiscal quarter 2002.

"Novell revenue and earnings in the third quarter benefited from better than anticipated business in Europe, and several large licenses for Web-based employee provisioning solutions in North America," said Novell chairman and chief executive officer Jack L. Messman. "We were very pleased with the improvement in software revenue in the quarter. NetWare®, GroupWise® and all of our newer Net services software products showed sequential growth. With the progress we are making, and the benefit of an improving IT market, we expect Novell to achieve overall year-over-year growth in 2003."

The results for the third fiscal quarter compare to revenue of $249 million for the same period in fiscal 2001. In the prior year, the company reported a third quarter loss of $0.06 per share, which included charges for restructuring, integration and impaired investments. When these charges were excluded, earnings for the third fiscal quarter 2001 were $0.04 per share.

For the first nine months of fiscal 2002, Novell reported revenue of $834 million and a net loss of $155 million. When asset impairments, restructuring charges and a gain on the sale of real estate are excluded, net earnings for the first nine months of 2002 were $30 million. For the first nine months of fiscal 2001, the company reported revenue of $735 million and a net loss of $178 million.

Review of Q3 Performance
>>> Revenue allocated by business segment: Novell's software product segment accounted for $206 million, or 73 percent of total revenue. Within this segment, Net Management Services revenue was $158 million. Net Directory Services revenue was $13 million. Customer service and education revenue was $35 million. Novell's consulting segment contributed $74 million, or approximately 26 percent of revenue. The Volera segment, providing content delivery network software, accounted for an additional $2 million.

>>> Revenue allocated by business category: Large network site-licenses led with $170 million, or 60 percent of revenue. Packaged software license sales for smaller networks totaled $26 million, or nine percent of total Novell revenue. Consulting services, product support and education revenue, not included in site-licenses, was $80 million, for 28 percent of total revenue. OEM royalties contributed two percent of total revenue.

>>> Revenue by geography: During the third fiscal quarter 2002, revenue from the United States was $143 million. The Europe, Middle East and Africa region contributed $102 million in revenue, Asia Pacific $20 million, and Canada and the Americas $16 million.

>>> Expenses: Operating expenses were down $11 million from the second quarter to $164 million. Setting aside the impact of a second quarter restructuring and the third quarter in-process R&D charge, ongoing operating expenses were up $6 million from the prior quarter to $161 million.

>>> Other income, net, primarily from investment income, contributed $7 million.

>>> On the balance sheet, cash and short-term investments were $607 million at the end of the quarter, compared with $705 million at the October 2001 fiscal year-end. Cash flow from operations for the quarter was a positive $36 million. Goodwill grew by $116 million from the prior quarter following the acquisition of SilverStream Software. Deferred revenue from pre-paid maintenance associated with site-licenses was up $28 million to $240 million from the prior quarter. Days sales outstanding (DSO) were up sequentially by eight days from the quarter before to 66 days, due to increased deferred revenue and SilverStream receivables added to Novell's balance sheet in the last month of the quarter.

Business outlook
For its fourth fiscal quarter, ending October 31, 2002, Novell's results will reflect additional revenue and costs associated with its recent SilverStream acquisition. We expect total revenue to be up approximately $10 million above third quarter levels. Due to the additional costs associated with SilverStream, earnings per share in the fourth quarter, excluding any extraordinary items, could be down slightly from the third quarter. The company's ability to achieve sequential improvements in revenue and earnings is dependent on success from its new solutions selling effort, and improved performance from its IT services business.

Conference call notification and Web access detail
A live Webcast of a Novell conference call to discuss the third fiscal quarter results with financial analysts will be broadcast at 5 PM EDT August 22 on the Quarterly Results page at Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/

Through midnight, August 29, an audio replay of the call will be available on the Quarterly Results page of Novell's Investor Relations Web page at: http://www.novell.com/company/ir/qresults/. A telephone replay of the conference call will be available after 7:30 PM EDT August 22, through midnight, August 29. To access the playback dial: 888-566-0787.

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 SilverStream acquisition, future opportunities for the combined company, and the growth of the market for Web services solutions. 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 integrate SilverStream's operations and employees, Novell's ability to deliver on its one Net vision of the Internet, Novell's ability to take a competitive position in the Web services industry, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand, and the other factors described in Novell's Annual Report on Form 10 K for the 2001 fiscal year and the most recent quarterly report filed by Novell with the SEC. Novell disclaims any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this presentation.

About Novell
Novell, Inc. (Nasdaq: NOVL) is a leading provider of Net business solutions designed to secure and power the networked world. Novell and its eServices company, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, leverage emerging Web services, and capture new opportunities with one Net solutions. Novell provides worldwide channel, developer, consulting, and education programs to support its offerings. For more information on Novell solutions and services, contact Novell's Customer Response Center at (888) 321-4CRC (4272) or visit http://www.novell.com. Press can find Novell announcements and company information at http://www.novell.com/pressroom.

Novell, NetWare and GroupWise are registered trademarks and Cambridge Technology Partners is a registered service mark of Novell, Inc. in the United States and other countries.

Novell, Inc. Consolidated Unaudited Condensed Statements of Income (In thousands, except per share data)
		Fiscal Quarter Ended				Year-to-date Ended
		Jul 31, 2002		Jul 31, 2001		Jul 31, 2002		Jul 31, 2001
Net sales		$282,273		$249,084		$833,985		$734,874
Cost of sales		109,822		76,176		340,219		210,255
Gross profit		172,451		172,908		493,766		524,619
Operating expenses
	Sales and marketing	90,125		100,013		261,660		338,335
	Product development	41,492		47,976		122,976		147,388
	General and administrative	29,566		28,101		90,946		77,347
	Restructuring	-		30,392		19,100		30,392
	Purchased in process R&D	3,000		-		3,000		-
Total operating expenses		164,183		206,482		497,682		593,462
Income (loss) from operations		8,268		(33,574)		(3,916)		(68,843)
Other income (expense), net		7,230		10,506		(698)		(103,854)
Income (loss) before taxes		15,498		(23,068)		(4,614)		(172,697)
Income tax expense (benefit)		5,549		(3,794)		6,835		(5,386)
Net income (loss) before accounting change		9,949		(19,274)		(11,449)		(167,311)
Cumulative effect of accounting change		-		-		(143,702)		(11,048)
NET INCOME (LOSS)		$9,949		$(19,274)		$(155,151)		$(178,359)
Net income (loss) per share:
	Basic
	Before cumulative effect of accounting change	$0.03		$(0.06)		$(0.03)		$(0.52)
	Cumulative effect of accounting change	-		-		(0.40)		(0.03)
		$0.03		$(0.06)		$(0.43)		$(0.55)
	Diluted
	Before cumulative effect of accounting change	$0.03		$(0.06)		$(0.03)		$(0.52)
	Cumulative effect of accounting change	-		-		(0.40)		(0.03)
		$0.03		$(0.06)		$(0.43)		$(0.55)
Weighted average shares:
	Basic	364,211		328,683		363,131		322,913
	Diluted	364,247		328,683		363,131		322,913
Certain reclassifications, none of which affect net income, have been made to the prior period amounts in order to conform to the current year's presentation.

 

Novell, Inc. Consolidated Unaudited Condensed Balance Sheets (In thousands)
ASSETS			Jul 31, 2002		Oct 31, 2001
Current assets
	Cash and short-term investments		$607,310		$705,243
	Receivables, net *		204,811		227,044
	Inventories		231		947
	Prepaid expenses		26,901		29,808
	Deferred income taxes		22,098		34,595
	Other current assets		22,710		29,729
Total current assets			884,061		1,027,366
Property, plant and equipment, net			459,687		496,620
Goodwill			167,310		187,795
Intangible assets			38,857		4,221
Long-term investments			94,657		114,971
Other assets			73,223		73,033
Total assets			$1,717,795		$1,904,006
LIABILITIES& SHAREHOLDERS' EQUITY
Current liabilities
	Accounts payable		$59,063		$77,571
	Accrued compensation		87,922		87,382
	Accrued marketing liabilities		12,183		13,672
	Other accrued liabilities		127,778		150,842
	Income taxes payable		26,245		38,175
	Deferred revenue		239,929		243,261
Total current liabilities			553,120		610,903
Minority interests			19,170		22,436
Shareholders' equity			1,145,505		1,270,667
Total liabilities and shareholders' equity			$1,717,795		$1,904,006
* Receivables, net include trade receivables less allowances. All other non-trade receivables are included in other current assets.