Novell (NOVL)

Q2 2010 Earnings Call

May 27, 2010 5:00 pm ET


Ronald Hovsepian - Chief Executive Officer, President and Executive Director

Dana Russell - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Robert Kain -


Brian Wallins - Broadpoint Capital

Katherine Egbert - Jefferies & Company, Inc.

Jonathan Doros - UBS

Brad Zelnick - Macquarie Research

Mark Murphy - Piper Jaffray Companies

Richard Williams - Cross Research



Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novell Second Quarter 2010 Financial Earnings Release. [Operator Instructions] Mr. Kain, you may begin your conference.

Robert Kain

Thank you. Good afternoon, everyone, and thanks for joining us. I'm Rob Kain, Vice President of Investor Relations for Novell. And with me today from our executive offices in Waltham, Massachusetts are Ron Hovsepian, President and Chief Executive Officer; and Dana Russell, our Chief Financial Officer.

We are here this afternoon to discuss Novell's financial results for the second fiscal quarter 2010. If you don't yet have our press release, you can access it by visiting our Investor Relations webpage at This call is also being broadcast through our website and will be archived on our website for a minimum of 12 months.

Before I turn the call over to Dana, I would like to take a moment to say that we will be providing non-GAAP financial measure during today's call. We believe that these measures enhance an overall understanding of our current financial performance and prospects for the future and enable investors to evaluate our performance in the same way that management does. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources and determine compensation. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are excluded from most analysts' consensus estimates that are unusual and/or that arise outside of the ordinary course of business such as, but not limited to, those related to stock-based compensation, acquisition-related intangible asset amortization, restructuring, asset impairments, litigation judgments and settlements, strategic alternatives review and the sale of business operations, long-term investments and property, plant and equipment. We have included reconciliations for these non-GAAP measures to the most directly comparable GAAP measures in our earnings release. As I mentioned, a copy of that release is on our website.

During our prepared remarks, we will mention some non-GAAP measures. The corresponding GAAP measures are: Q2 2010 GAAP net income of $20 million, GAAP EPS of $0.06 and fiscal 2010 GAAP tax rate guidance of 33% to 36%. We may also provide projections to non-GAAP financial measures such as projected non-GAAP operating margin and so forth. The corresponding forward-looking GAAP financial measures are not available and cannot be provided without undue effort because we are unable to accurately forecast information regarding expenses or gains such as, but not limited to, those previously described. We believe that the corresponding GAAP financial measure is not likely to be significant to an understanding of our business because there is likely to be substantial variability between projected and actual realization of expenses and gains described above and/or that such expenses or gains are likely to arise outside of the ordinary course of business.

We will also provide information regarding Novell's general product direction and roadmap. It's intended for information purposes only and may not be incorporated in any contract. It is not a commitment to deliver any material, code or functionality and should not be relied upon in making purchasing decisions. The development, release and timing of any features or functionality described for Novell's products remains at the sole discretion of Novell.

Finally, please note that during today's call, we may make forward-looking statements. You should be aware that our actual results could differ materially from those contained in the forward-looking statements, which are based on current management expectations and are subject to a number of risks and uncertainties including, but not limited to, factors described in our annual report on Form 10-K filed with the Securities and Exchange Commission on December 22, 2009, and in the press release we issued earlier today.

Forward-looking statements do not reflect the occurrence of unplanned or unanticipated events and cannot take into account unforeseen circumstances. Actual results for future periods may differ from those projected. Any forward-looking information that we provide in this call represents our outlook as of today, May 27, 2010, and we do not undertake any obligation to update our forward-looking statements except as may be required by the law.

With that, we are ready for our CFO, Dana Russell.

Dana Russell

Well, thanks, Rob. Novell's second fiscal quarter 2010 results were released a short time ago. The company reported net revenue of $204 million. GAAP income from operations was $20 million. Non-GAAP income from operations was $30 million, and non-GAAP income was $24 million or $0.07 per share. Foreign currency exchange rates favorably impacted revenue by $2 million and negatively impacted operating expenses by $6 million and the income from operations by $4 million on a year-over-year basis.

Overall results this quarter were in line with expectations, and non-GAAP operating margins were at the high end of our guidance. Despite recent events, which we believe had a negative impact on our business, especially in Identity and Security, we remain optimistic about our future. We feel good about the progress we've made in our Linux business and confident that our Identity and Security Management prospects remain favorable.

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