Novell EPS Beats, Revenue Misses - Analyst Blog

Enterprise software developer Novell Inc. (NOVL) reported first quarter 2011 non-GAAP earnings (excluding one-time charges) of 7 cents per share, which was 2 cents above the Zacks Consensus Estimate. Earnings per share (EPS) were in line with the year-ago quarter's 7 cents. The quarter was impacted by a $31 million net tax charge in connection with the planned repatriation of a majority of non-U.S. cash.

Revenues

Revenues decreased 5.8% year over year to $190.7 million from $202.4 million in the year-ago quarter. Revenues also missed the Zacks Consensus Estimate of $200.0 million. Foreign currency exchange rates negatively impacted revenues by $1.0 million.

Revenues from Software Licenses fell 3.8% year over year to $20.4 million. Maintenance and Subscription revenues decreased 5.4% year over year to $150.4 million. Services dropped 10.3% year over year to $19.9 million.

Margin

Gross margin decreased slightly to 78.2% from 78.4% in the year-ago quarter due to higher cost of sales as a percentage of revenue. Total operating expenses were flat year over year to $137.6 million, driven by favorable foreign exchange. Operating margin, on a non-GAAP basis, came in at 16.0% versus 16.2% in the prior-year quarter.

Balance Sheet

At the end of January 31, 2011, cash, cash equivalents and short-term investments were $1.13 billion, slightly up from $1.10 billion in the prior quarter. Cash flow from operations decreased to $9.2 million from $51.6 million in the earlier quarter.

Days sales outstanding were 42 days at the end of the first quarter, down from 76 days in the year-ago quarter. Total deferred revenue was $593 million, down from $651 million in the previous quarter.

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 in November. Attachmate Corporation will acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.15 billion.

Shareholders approved the deal in February. Novell reported that 66% of the company's 353 million outstanding shares voted to approve the deal.

However, the deal is still subject to regulatory approval of its $450 million sale of certain patents and patent applications to CPTN Holdings LLC, a consortium of technology companies organized by Microsoft Corp. (MSFT).

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 our Neutral rating on Novell.