Novell Makes A Few Cents, Sort Of (NOVL)

Novell Inc. (NOVL-NASDAQ) has turned in earnings of $0.03 non-GAAP EPS and revenues of $239 million, compared to First Call estimates of $0.01 and $235.1 million.  The company managed to lose $110,000.00 on a GAAP basis, but you really have to wonder why they couldn’t have cut out something that would have allowed them to show a net profit on a GAAP basis if it really boiled down to that small of a difference. 

Its guidance came in at $925 million to $955 million in full 2007 revenues, versus $954 million estimates, but that accounts for a divestiture of the Salmon business consulting group.  On a non-GAAP basis it sees earnings for 2007 at break-even to $10 million with an ‘exit rate operating margin’ of 5% to 7%.  It is also targeting the 2008 ‘exit rate operating margins’ of 12% to 15%.

The company even said that foreign currency exchange rates ‘favorably impacted revenues by $4 million’ and ‘negatively impacted net income by $2 million’ year over year.  Did these guys open open up a forex trading account and get hosed?

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.  At least the open source revenues are heading the right way.  Cash and equivalents were $1.8 billion at April 30, 2007 and total liabilities were $1.581 Billion. 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.

Novell closed down 1.3% at $7.36, but shares are up 2.3% from the close at $7.53.  This report looks ok, but when companies are this close to net profits it is sort of a head scratcher as to how they manage not to hunker down just a little more.  So far this is being treated as good news, but personally it looks like things could have been managed a tad better.   

Jon C. Ogg
May 30, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.