Enterprise software developer Novell Inc. (NOVL) reported fourth quarter 2010 non-GAAP earnings of 7 cents, excluding one-time charges, in line with the Thomson Reuters Consensus. Earnings per share (EPS) plunged 36.4% from the year-ago quarter’s earnings of 11 cents.
In the after-hour, shares were down 0.5% (3 cents) at $5.93.
Revenues decreased 4.2% year over year to $206.5 million from $215.6 million in the year-ago quarter. Revenues were slightly above the Thomson Reuters Consensus estimate of $204.1 million. Foreign currency exchange rates favorably impacted revenues by $1.0 million.
Revenues from Software Licenses fell 0.4% year over year to $31.3 million. Maintenance and subscriptions revenues decreased 4.1% year over year to $153.3 million. Services dropped 9.7% year over year to $22.0 million.
Novell witnessed strong performance from its Linux business with invoicing for Linux, excluding Microsoft Corp. (MSFT) certificates, increasing more than 40% from the year-ago quarter. Novell remains the #2 maker of the open source Linux operating system behind Red Hat (RHT).
Novell said that the Collaboration Solutions business stabilized in the quarter, with invoicing decreasing 3.0% from the year-ago quarter.
According to business units, Security Management and operating platforms’ revenues dipped 2.4% year over year to $128.3 million in the quarter. Revenues from the Collaboration Solutions business unit decreased 7.1% year over year to $78.2 million.
Identity, access and compliance management revenues were $34.2 million, up 6.4% year over year. Systems and resource management product revenues were $39.2 million, down 3.0% year over year.
Gross margin increased slightly to 78.2% from 77.9% in the year-ago quarter. Total operating expenses decreased 67.4% year over year to $139.4 million, driven by improved cost management and favorable foreign exchange. Operating margin improved to 10.7% from -120.2% in the year-ago quarter. The year-ago quarter included a $279 million non-cash impairment charge to goodwill and intangible assets.
Operating margin on a non-GAAP basis improved to 18.5% from 17.2% in the year-ago quarter.
Balance Sheet
At the end of October 31, 2010, cash, cash equivalents and short-term investments were $1.1 billion, up from $1.0 billion in the prior quarter. Cash flow from operations was $51.6 million as compared with a cash generation of $26.0 million in the prior quarter. In full fiscal 2010, cash flow from operations was $76 million, compared with $69 million in 2009.
Days sales outstanding were 76 days at the end of the fourth quarter, up from 75 days in the year-ago quarter. Total deferred revenue was $651 million, down from $689 million in the year-ago quarter.
Full-Year Results
Full-year 2010 revenues came in at $811.9 million, down 5.8% from $862.2 million in fiscal 2009. On a non-GAAP basis, EPS came in at 27 cents, down 20.6% from 34 cents reported in fiscal 2009.
Acquisition Update
Novell announced that it will be acquired by Attachmate Corporation, a software company supported by private equity firms such as Golden Gate Capital, Francisco Partners and Thoma Bravo. Novell expects the deal to close in the first quarter of 2011. Attachmate Corporation will acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.2 billion.
Novell believes that the deal would add value to customers and would complement its existing product portfolio. In our opinion, the potential acquisition will boost Attachmate’s customer base and enhance its cloud computing abilities, thereby driving top-line growth over the long term.
Currently, we maintain a Neutral rating on Novell on a long-term basis (6-12 months). Novell has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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