Novell reports first fiscal quarter 2002 results

Novell, Inc., today reported revenue of $271 million and earnings of $0.02 per share for its first fiscal quarter 2002.

"Changes made in the quarter represent good, incremental progress in our effort to improve Novell's business performance," said Jack L. Messman, Novell chairman, president and chief executive officer. "The integration of Cambridge Technology Partners within Novell is almost complete. We are controlling costs in the face of a restrained IT marketplace, and taking steps intended to strengthen our software business with associated solutions offerings.

"Cost-cutting actions we took last fall enabled us to lower costs from the prior period by $40 million," Messman continued. "We've begun to achieve our near-term objective of improved profitability as we address the longer-term issue of returning Novell to sustainable growth overall."

Software product revenue posted an anticipated seasonal decline from the fourth quarter. However, within this category revenue from business solutions that address network access and security, and user provisioning increased. This aspect of Novell's business reflected solution decisions by very large organizations in aerospace, telecommunications, financial services, government, and health care market sectors. IT services consulting revenue experienced a greater than anticipated sequential decline, especially in North America.

Results for Novell's first fiscal quarter 2002 compare to revenue of $245 million, and a reported loss per share of $0.02 in the same period a year ago, before the Novell acquisition of Cambridge in July 2001. Results for the fiscal 2002 period includes $58 million of revenue from Cambridge.

Review of Q1 Performance
Following Novell's integration of Cambridge, the company manages its business among three segments: product, consulting and Volera, Inc. In Novell's first fiscal quarter, the product segment, which includes software license, and software related service and education revenue, accounted for $199 million, or 74 percent of total revenue. It declined seven percent sequentially from the fourth fiscal quarter 2001. The consulting segment of the company's business contributed $70 million, or approximately 26 percent of revenue, and declined 23 percent sequentially. Consulting includes IT services revenue from Cambridge Technology Partners and Novell® Consulting, as well as management consulting revenue from the company's Celerant subsidiary. Volera, a majority owned Novell subsidiary providing content distribution network software, contributed $2 million, or just under one percent of total revenue, down slightly from the prior quarter.

>>> Revenue within Novell's product segment: Net Management Services revenue was down nine percent sequentially from the fourth fiscal quarter 2001 at $154 million. Net Directory Services revenue was $11 million, up five percent from the fourth fiscal quarter 2001. Customer service and education revenue was approximately flat at $34 million.

>>> Revenue by business category: Novell revenue allocated by method of delivery was led by large network site-licenses of $162 million, or 60 percent of revenue. Packaged software license sales for smaller networks totaled $27 million, or ten percent of total Novell revenue. Consulting services, product support and education revenue, not included in site-licenses, was $75 million, or 28 percent of total revenue. OEM royalties contributed 2 percent of total revenue.

>>> Revenue by geography: During the first fiscal quarter 2002, revenue from the United States was $144 million. The Europe, Middle East and Africa region, contributed $95 million in revenue, Asia Pacific $19 million, and Canada and the Americas $13 million.

>>> Other income was $10 million for the quarter, primarily interest income, but it also included a net gain of $3 million associated with the sale of property and a write down of investments.

On the balance sheet, cash and short-term investments increased by $30 million to $736 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 $21 million. Days sales outstanding (DSO) declined sequentially to 53 days, down from 67 days.

Deferred revenue was down seven percent from the fourth quarter, and up three percent year-over-year to $227 million. This revenue represents prepaid service, and future software deliveries associated with Novell's large network site license business, and largely recognized over time.

Business outlook
Novell continues to anticipate downward pressure on revenue as the company implements its transition to a solution focused business model. The company now expects that in its second fiscal quarter ending April 30, 2002, revenue will be between $255 and $265 million. Revenue at these levels is likely to leave the company at approximately break-even for its second fiscal quarter before the impact of any restructuring and integration costs. In the second half of fiscal year 2002, the company's ability to achieve sequential improvements in revenue and earnings will be 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 first fiscal quarter results with financial analysts will be broadcast at 5 p.m. EST Feb. 28 on the Quarterly Results page at Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/

Through midnight, March 8, 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 p.m. EST Feb. 28, through midnight, March 8. To access the playback dial: 888-566-0787

Accompanying this press release is a diagram of Novell's Net Business Solutions Model. It can be accessed on the Novell Web site at www.novell.com/company/ir or from the PR Newswire Web site at http://www.newscom.com/cgi-bin/prnh/20020228/SFTH071

Forward looking statements
This press release, and the one Net business Solutions Model referenced above, contains forward-looking statements that involve a number of risks and uncertainties, as well as assumptions about changes in Novell's staffing, organization and business processes, changing markets and market conditions, market opportunities, marketing efforts, near and long-term operating performance and business objectives, potential new business strategies, new solutions focus, a new selling organization, Net services, anticipated demand for new offerings from markets that Novell is entering, future business performance and outlook. These forward-looking statements are neither promises nor guarantees and involve a number of risks and uncertainties that could cause actual results to differ materially. The risks and uncertainties include, but are not limited to, the following: business conditions and the general economy; changes in distribution choices and channel partners; competitive factors; sales and marketing execution; shifts in technologies or market demand, the successful integration of Novell and Cambridge Technology Partners and other risks identified in the company's SEC filings, including information under the heading "forward looking statements" its Form 10-K for the fiscal year 2001 and in the Form S-4 registration statement filed in connection with the merger with Cambridge Technology Partners.

About Novell
Novell, Inc. (NASDAQ: NOVL), is a leader in eBusiness solutions and Net services software designed to secure and power the networked world. Novell and its eServices division, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities with one Net solutions. Novell provides worldwide channel, consulting, education and developer programs to support its offerings.

For information on Novell's complete range of products and services, contact Novell's Customer Response Center at (888) 321-4CRC (4272), or visit Novell's Web site at http://www.novell.com. Information on eBusiness and integration solutions from Cambridge Technology Partners can be accessed at http://www.ctp.com. Press may access Novell announcements and company information on the World Wide Web at http://www.novell.com/pressroom.

Novell and Cambridge Technology Partners 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 Income (In thousands, except per share data)
		Fiscal Quarter Ended
		Jan 31, 2002		Jan 31, 2001
Net sales		$271,063		$245,035
Cost of sales		110,773		66,954
Gross profit		160,290		178,081
Operating expenses
	Sales and marketing	87,366		121,419
	Product development	41,123		46,846
	General and administrative	30,325		23,100
Total operating expenses		158,814		191,365
Income (loss) from operations		1,476		(13,284)
Other income (expense), net		10,454		17,831
Income (loss) before taxes		11,930		4,547
Income tax expense (benefit)		3,579		1,273
Net income (loss) before accounting change		8,351		3,274
Cumulative effect of accounting change, net of tax		-		(11,048)
NET INCOME (LOSS)		$8,351		$(7,774)
Net income (loss) per share:
Basic
	Before cumulative effect of accounting change	$0.02		$0.01
	Cumulative effect of accounting change	-		(0.03)
		$0.02		$(0.02)
Diluted
	Before cumulative effect of accounting change	$0.02		$0.01
	Cumulative effect of accounting change	-		(0.03)
		$0.02		$(0.02)
Weighted average shares:
	Basic	362,428		322,183
	Diluted	362,970		322,183

 

Novell, Inc. Consolidated Unaudited Condensed Balance Sheets (In thousands)
ASSETS			Jan 31, 2002		Oct 31, 2001
Current assets
	Cash and short-term investments		$735,519		$705,243
	Receivables, net *		159,086		227,044
	Inventories		1,079		947
	Prepaid expenses		27,063		29,808
	Deferred& refundable income taxes		34,316		34,595
	Other current assets		22,592		29,729
Total current assets			979,655		1,027,366
Property, plant and equipment, net			470,148		496,620
Goodwill and intangible assets			195,223		192,016
Long-term investments			112,533		114,971
Other assets			73,700		73,033
Total assets			$1,831,259		$1,904,006
LIABILITIES& SHAREHOLDERS' EQUITY
Current liabilities
	Accounts payable		$57,069		$77,571
	Accrued compensation		88,805		87,382
	Accrued marketing liabilities		13,091		13,672
	Other accrued liabilities		102,411		150,842
	Income taxes payable		37,734		38,175
	Deferred revenue		227,039		243,261
Total current liabilities			526,149		610,903
Minority interests			21,395		22,436
Shareholders' equity			1,283,715		1,270,667
Total liabilities and shareholders' equity			$1,831,259		$1,904,006
* Receivables, net include trade receivables less allowances. All other non-trade receivables are included in other current assets.

 

Novell, Inc. Segment Income Statement Information (in thousands of dollars)
Quarter Ended January 31, 2002
		Product	%	Consulting	%	Volera	%	Total Novell	%
Net sales		$199,257	100.0	$69,671	100.0	$2,135	100.0	$271,063	100.0
Cost of sales		37,169	18.7	72,695	104.3	909	42.6	110,773	40.9
Gross profit		162,088	81.3	(3,024)	(4.3)	1,226	57.4	160,290	59.1
Segment operating expenses*		122,725	61.6	27,273	39.1	7,125	333.7	157,123	58.0
Segment income (loss) from operations		$39,363	19.8	$(30,297)	(43.5)	$(5,899)	(276.3)	$3,167	1.2
Unallocated operating expenses
	Restructuring							-	-
	Integration							1,691	-
Total unallocated operating expenses								1,691	-
Income (loss) from operations								$1,476	0.5
* Segment operating expenses include direct segment costs along with management's allocation of certain common sales, marketing, and general and administrative costs to each business segment.
Quarter Ended October 31, 2001
		Product	%	Consulting	%	Volera	%	Total Novell	%
Net sales		$215,004	100.0	$90,419	100.0	$2,187	100.0	$307,610	100.0
Cost of sales		39,345	18.3	79,206	87.6	1,516	69.3	120,067	39.0
Gross profit		175,659	81.7	11,213	12.4	671	30.7	187,543	61.0
Segment operating expenses*		141,817	66.0	32,539	36.0	10,711	489.8	185,067	60.2
Segment income (loss) from operations		$33,842	15.7	$(21,326)	(23.6)	$(10,040)	(459.1)	$2,476	0.8
Unallocated operating expenses
	Restructuring							49,785	16.2
	Integration							4,661	1.5
Total unallocated operating expenses								54,446	17.7
Income (loss) from operations								$(51,970)	(16.9)
* Segment operating expenses include direct segment costs along with management's allocation of certain common sales, marketing, and general and administrative costs to each business segment.