Software

Return to Article

Novell Beats Estimates

Ivy Lessner

SAN FRANCISCO -- Open-source software developer Novell(NOVL Quote) beat Wall Street's third-quarter estimates Wednesday, narrowing its loss from a year earlier.

The Waltham, Mass., company reported revenue of $243.1 million, up 2.9% from a year earlier, when revenue totaled $236.3 million. Analysts had expected a top line of $234.8 million.

Novell narrowed its loss to $3.4 million, or a penny a share, vs. a loss of $6.4 million in the year-ago period.

Excluding items, EPS was 5 cents, beating analysts' estimates of 2 cents a share.

The stock was recently trading up 21 cents, or 3.1%, to $7 in after-hours trading.

Cash flow from operations was $26 million, vs. $36 million in the year-ago quarter. Deferred revenue was up 88% year on year to $734 million.

The company stuck to its prior guidance for full-year revenue ranging from $925 million to $955 million. Analysts were predicting revenue of $943.7 million. Novell said full-year net income, less items, would surpass its previous guidance of break-even to $10 million. Analysts were projecting a bottom line of $9.23 million.

The company's guidance implies a fourth-quarter top line of $218 million to $248 million. Analysts were expecting $240 million.

Novell's open platforms business, which includes Linux, was up 77% year over year to $22 million, and Linux platform invoicing rose 95%, to $38 million. That business unit benefited from a large deal with a company in India buying SUSE Linux for 30,000 desktops and 2,000 servers.

The weak sales spot for the quarter was in Novell's identity and security management business, whose invoicing was up a scant 3% year over year due to poor sales execution, said President and CEO Ron Hovsepian.

A bright spot was in the Workgroup business unit, which had been hemorrhaging sales. Revenue declined a mere 2%, to $83 million, and invoicing declined 9%, also one of the lowest rates in recent memory. "It's too early to conclude that this is a trend," Hovsepian said.

The company ended the quarter with year-to-date operating income, excluding items, of $19 million, and is on track to end the year with an operating margin of 5% to 7%, said CFO Dana Russell.

The company brought sales and marketing expense down by 5.7% year on year to $84.6 million. Although some marketing campaigns are seasonal and expenses will rise, Novell is beginning to transition to a more cost-efficient Teleweb program to promote contract renewals, Hovsepian said.

Broader economic turmoil has not shown up yet in sales to corporations or, more specifically, the financial services market, Hovsepian said. "That doesn't mean there won't be some elongation of sales cycles, but ... I'm not seeing the macro impact now."