Novell Reports Financial Results for Second Fiscal Quarter 2007

WALTHAM, Mass., May 30 /PRNewswire-FirstCall/ -- 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 at http://sec.gov/Archives/edgar/data/758004/000075800407000082/novl- 8k_052307.htm.

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 website at http://www.novell.com/ir.

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(R) 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 May 30, 2007, 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, 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.

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" within the meaning of the Private Securities Litigation Reform Act, 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 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 ("SEC") on May 25, 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 infrastructure software for the Open Enterprise. Novell is a leader in enterprise-wide operating systems based on Linux and open source and provides the enterprise management services required to operate mixed IT environments. Novell helps customers minimize cost, complexity and risk, allowing them to focus on innovation and growth. For more information, visit http://www.novell.com.

Novell is a registered trademark 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.

Novell, Inc.

Consolidated Unaudited Condensed Statements of Operations

(In thousands, except per share data) Fiscal Quarter

Ended Fiscal Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2007 2006 2007 2006

Net revenue:

Software licenses $41,723 $40,063 $80,074 $82,165

Maintenance, subscriptions and

services 197,433 193,086 383,678 387,525

Total net revenue 239,156 233,149 463,752 469,690 Cost of revenue:

Software licenses 4,260 4,041 8,487 8,585

Maintenance, subscriptions and

services 65,785 73,281 131,617 145,517

Total cost of revenue 70,045 77,322 140,104 154,102 Gross profit 169,111 155,827 323,648 315,588 Operating expenses:

Sales and marketing 88,447 89,453 178,776 177,168

Product development 52,562 47,119 99,029 90,843

General and administrative 28,697 25,915 54,559 54,567

Total operating expenses before

other 169,706 162,487 332,364 322,578 Loss from operations before

other operating expenses (income) (595) (6,660) (8,716) (6,990) Other operating expenses (income) (1) 10,451 (1,305) 22,937 (2,305) Loss from operations (11,046) (5,355) (31,653) (4,685) Other income, net 13,755 12,917 31,800 25,821 Income from continuing operations,

before income taxes 2,709 7,562 147 21,136 Income tax expense 2,819 5,607 12,216 17,210 Income (loss) from continuing

operations (110) 1,955 (12,069) 3,926 Income (loss) from discontinued

operations, before income taxes 574 3,279 (10,137) 2,893

Income tax expense (benefit) on

discontinued operations 2,656 1,892 (69) 1,612

Income (loss) from discontinued

operations (2,082) 1,387 (10,068) 1,281 Net income (loss) $(2,192) $3,342 $(22,137) $5,207

Income (loss) available to common

stockholders - diluted: Continuing operations $(110) $1,900 $(12,069) $3,817 Net income (loss) $(2,192) $3,178 $(22,137) $5,021

Income (loss) per share available

to common stockholders - diluted: Continuing operations $(0.00) $0.00 $(0.03) $0.01 Net income (loss) $(0.01) $0.01 $(0.06) $0.01

Weighted average shares - diluted 346,492 385,320 346,007 389,657 (1) See Page 9 of 14 for a detail of other operating expenses (income).

Certain reclassifications, none of which affected net income (loss), were made to prior period amounts in order to conform to the current period's presentation.

Stock-based compensation expense recorded in above amounts: Fiscal Quarter Fiscal

Ended Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2007 2006 2007 2006 Cost of revenue $937 $923 $1,984 $1,985 Sales and marketing 2,400 3,043 4,260 6,575

Product development 2,535 1,750 4,686 4,387

General and administrative 2,259 1,944 3,700 8,215

Total operating expenses 7,194 6,737 12,646 19,177 Continuing operations 8,131 7,660 14,630 21,162 Discontinued operations -- 70 -- 263 Total stock-based compensation

expense $8,131 $7,730 $14,630 $21,425 Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets

(In thousands) Apr 30, 2007 Oct 31, 2006

Assets Current assets:

Cash and cash equivalents $950,992 $675,787

Short-term investments 840,721 790,500

Receivables, net 178,269 233,986

Prepaid expenses 37,406 32,328

Other current assets 30,710 28,524

Total current assets 2,038,098 1,761,125 Property, plant and equipment, net 183,491 184,084

Long-term investments -- 2,263

Goodwill 415,815 424,701

Intangible assets, net 38,035 40,404

Deferred income taxes 4,805 4,770

Other assets 31,131 32,376 Total assets $2,711,375 $2,449,723

Liabilities and Stockholders' Equity Current liabilities:

Accounts payable $43,386 $44,419

Accrued compensation 90,643 103,710

Other accrued liabilities 97,891 106,837

Income taxes payable 44,837 49,600

Deferred revenue 412,007 380,979

Total current liabilities 688,764 685,545 Deferred income taxes 5,004 4,186

Long-term deferred revenue 287,494 45,992

Senior convertible debentures 600,000 600,000 Total liabilities 1,581,262 1,335,723 Preferred stock -- 9,350 Stockholders' equity 1,130,113 1,104,650 Total liabilities and stockholders'

equity $2,711,375 $2,449,723

Reclassifications were made to the prior period amounts in order to conform to the current period's presentation.

Novell, Inc.

Consolidated Unaudited Condensed Statements of Cash Flows

(In thousands) Fiscal Quarter Ended Fiscal Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2007 2006 2007 2006 Cash flows from operating

activities:

Net income (loss) $(2,192) $3,342 $(22,137) $5,207

Adjustments to reconcile net

income (loss) to net cash

(used) provided by

operating activities:

Stock-based compensation

expense 9,933 7,730 16,432 21,425

Tax effects of stock-based

compensation plans 2,077 1,247 4,063 5,286

Excess tax benefits from

stock-based compensation (2,077) (1,247) (4,063) (5,286)

Depreciation and amortization 10,309 10,867 21,473 22,378

Changes in accounts receivable

allowances (1,224) (1,930) (451) (4,903)

Utilization of previously

reserved acquired net

operating losses 2,354 2,976 4,825 3,520

Purchased in-process research

and development - 2,110 - 2,110

Net gain on sale of property,

plant and equipment - (2,190) - (2,190)

Net (gain) loss on impaired

long-term investments - 111 (1,738) 498

Gain on sale of venture capital

partnership interests - - (3,591) -

Loss on impaired goodwill and

intangibles - - 10,848 -

Gain on sale of discontinued

operations, before taxes (628) - (628) -

Changes in current assets and

liabilities, excluding the

effect of acquisitions

and dispositions (47,147) (46,962) 293,900 (46,868) Net cash (used) provided by

operating activities (28,595) (23,946) 318,933 1,177 Cash flows from financing

activities:

Issuance of common stock, net 742 8,206 8,127 18,082

Excess tax benefits from

stock-based compensation 2,077 1,247 4,063 5,286

Payment of cash dividends on

Series B Preferred Stock - (47) (5) (47)

Repurchases of common stock,

retired - (267,479) - (267,479) Net cash provided (used) by

financing activities 2,819 (258,073) 12,185 (244,158) Cash flows from investing

activities:

Purchases of property, plant

and equipment (7,550) (6,951) (12,508) (14,554)

Proceeds from the sale of

property, plant and equipment - 7,258 - 7,258

Proceeds from repayment of note

receivable - 9,092 - 9,092

Short-term investment

activity (47,552) 41,784 (47,420) 46,258

Long-term investment

activity - (2,758) 1,738 (3,014)

Cash paid for equity investment

in Open Invention Network, LLC - - - (4,225)

Proceeds from the sale of

Salmon, net of cash divested 2,749 - 2,749 -

Proceeds from sale of venture

capital partnership interests - - 4,964 -

Cash paid for acquisition of

e-Security, net of cash

acquired - (71,550) - (71,550)

Cash paid for acquisition of

Redmojo, net of cash acquired - - (9,727) -

Purchase of intangible assets (875) - (875) -

Other 4,518 2,090 5,166 4,552 Net cash used in investing

activities (48,710) (21,035) (55,913) (26,183) (Decrease) increase in cash and

cash equivalents (74,486) (303,054) 275,205 (269,164) Cash and cash equivalents -

beginning of period 1,025,478 845,128 675,787 811,238 Cash and cash equivalents - end

of period $950,992 $542,074 $950,992 $542,074 Novell, Inc.

Unaudited Non-GAAP Adjusted Earnings Information

(In thousands, except per share data)

Fiscal Quarter

Ended Fiscal Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2007 2006 2007 2006

GAAP diluted income (loss)

available to common

stockholders from continuing

operations $(110) $1,900 $(12,069) $3,817 Pre-tax adjustments:

Operating expenses:

Stock-based compensation

expense 8,131 7,660 14,630 21,162 Other operating expenses

(income):

Restructuring expenses 4,523 -- 11,874 (1,000)

Purchased in-process research

and development -- 2,110 -- 2,110

Gain on sale of property, plant

and equipment -- (2,190) -- (2,190)

Litigation-related income -- (1,225) (543) (1,225)

Stock-based compensation review

expenses (1) 5,928 -- 11,606 --

Sub-total 10,451 (1,305) 22,937 (2,305) Non-operating expenses (income):

Gain on sale of venture capital

partnership interests -- -- (3,591) --

Net (gain) loss on impaired

long-term investments -- 111 (1,738) 498

Sub-total -- 111 (5,329) 498 Total pre-tax adjustments 18,582 6,466 32,238 19,355 Income tax adjustments (2,576) (1,606) (1,317) (704) Diluted income (loss)

adjustments:

Allocation of earnings to

preferred stockholders -- (18) -- (72) Total net adjustments 16,006 4,842 30,921 18,579 Non-GAAP diluted income available

to common stockholders from

continuing operations $15,896 $6,742 $18,852 $22,396

GAAP diluted income (loss) per

common share

from continuing operations $(0.00) $0.00 $(0.03) $0.01

Adjustments detailed above 0.05 0.02 0.08 0.05 Non-GAAP diluted income per common

share from continuing operations $0.05 $0.02 $0.05 $0.06

GAAP diluted weighted average

shares from continuing

operations 346,492 385,320 346,007 389,657 Adjustments for assumed stock

option exercises 6,171 3,707 5,069 3,745 Non-GAAP diluted weighted average

shares 352,663 389,027 351,076 393,402 (1) Includes $1.8 million of stock-based compensation expense.

Revisions were made to prior period amounts in order to conform to the current period's presentation.