Novell Q2 FY2010 investor presentation
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Novell provides a Q2 2010 financial update. It reports consistent margin improvement over the past three years, with gross margin reaching 80% and operating margin reaching 16%. Product revenue grew 54% from the prior year. Novell addresses key customer challenges around managing workloads across physical, virtual and cloud environments through its intelligent workload management solutions. It aims to be the leader in this emerging category and grow revenue while expanding margins.
Novell Q2 FY2010 investor presentation
- 1. Novell Investor Relations ® Q2 2010 Update Revised March 10, 2010 APPROVED FOR EXTERNAL USE
- 2. Forward Looking Information This presentation includes statements that are not historical in nature and that may be characterized as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, including those related to projections; objectives; strategy; market growth rates; future relevance of physical, virtual and cloud environments; the capabilities of Intelligent Workload Management; current and future product development; timing of availability of planned releases; margin improvement; trends in revenue growth; ability to compete; financial position; growth and increases in share price; future opportunities; customer priorities; timing of realization of projections; functionality, characteristics, quality and performance capabilities of Novell's products and technology; and results achievable and benefits attainable through deployment of Novell's products and provision of services. Forward-looking statements forecasting growth in financial metrics are predicated on assumptions regarding improvements in the overall economy and the markets served by the Company and in which the Company operates, the timing of which are impossible to accurately predict. Actual results may differ materially from the results discussed in or implied by such forward-looking statements, which are based upon information that is currently available to us and/or management’s current expectations, speak only as of the date hereof, and are subject to a number of factors, including, but not limited to: indirect sales, growth rates of our business units, renewal of SUSE Linux Enterprise ServerTM subscriptions with customers who have received certificates from Microsoft, decline rates of Open Enterprise Server and NetWare® revenue, development of products and services, the Intelligent Workload Management market, software vulnerabilities, delays in product releases, reliance on open source software, adequacy of renewal rates, uncertain economic conditions, competition, rapid technological changes, failure to expand brand awareness, adequacy of technical support, pricing pressures, system failures, integration of acquisitions, industry consolidation, challenges resulting from a global business, foreign research and development operations, loss of key employees, intellectual property infringement, litigation matters, unpredictable financial results, impairments, the timing of revenue recognition, our investments, and effective use of our cash.. A detailed discussion of these and other factors that could affect our results is included in our SEC filings, including, but not limited to, our Annual Report on Form 10-K for the Fiscal Year Ended October 31, 2009 filed with the SEC on December 22, 2009, which may be obtained by calling (800) 317- 3195, or at our Investor Relations web page at: www.novell.com/company/ir. We expressly disclaim any obligation, except as required by law, or undertaking to update or revise any forward-looking statements contained in this presentation to reflect any change of expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part. We also provide information regarding Novell's general product direction and roadmap. It is intended for information purposes only, and may not be incorporated into 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. 2 © Novell, Inc. All rights reserved.
- 3. GAAP Financial Measures We supplement our consolidated, unaudited, condensed financial statements presented in accordance with GAAP with certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to corresponding GAAP financial measures is included on slide 25 of this presentation. These non-GAAP measures include gross margin, sales and marketing expense margin, product development expense margin, general and administrative expense margin and operating margin. Below are the GAAP measures that correspond with the non- GAAP measures presented on pages 21-23. We provide non-GAAP financial measures to enhance an overall understanding of our current financial performance and prospects for the future and to enable you to evaluate our performance in the same way that management does. Management uses these 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 judgements and settlements, purchased in-process research and development, and the sale of business operations, long-term investments, and property, plant and equipment. GAAP Operating Model We also present a projection of our non-GAAP gross margin, sales and marketing expense margin, product 2006 2009 development expense margin, general and Gross Margin 69% 78% administrative expense margin and operating margin. These projections are forward-looking, non-GAAP financial measures. The corresponding GAAP financial Expense Margins measures are not available and cannot be provided Sales and Marketing 38% 34% without undue effort because we are unable to Product Development 20% 21% accurately forecast information regarding expenses or gains such as, but not limited to, those listed above. General and Administrative 11% 12% We believe that the corresponding GAAP financial Other Operating Expenses 5% 35% measures are 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 the expenses and gains described Operating Margin -5% -24% above and/or that such expenses or gains are likely to arise outside of the ordinary course of business. 3 © Novell, Inc. All rights reserved.
- 4. Agenda Corporate Strategy Today's Customer Challenges Intelligent Workload Management Financial Highlights 4 © Novell, Inc. All rights reserved.
- 6. Novell Vision ® Making IT Work As One Through our infrastructure software and ecosystem of partnerships, Novell harmoniously integrates mixed IT environments, allowing people and technology to work as one. Novell Mission To help our clients reduce cost, complexity and risk on virtually any platform Novell Strategy To be the industry leader in the new category of intelligent workload management 6 © Novell, Inc. All rights reserved.
- 7. Novell Offers 10 Infrastructure ® Software Solutions Data Center End-User Identity OEM Computing and Security Virtualization and Endpoint Security Software Workload Management Management Appliances Management Collaboration Compliance Preloaded Linux Enterprise Linux Management Desktops Servers Identity and Business Service Access Management Management 7 © Novell, Inc. All rights reserved.
- 8. 2010 IDC Projected Market Growth Rates for Our Markets Data Center End-User Identity OEM Computing and Security 23% 11% 23% 118% Virtualization and Endpoint Security Software Workload Management Management Appliances Management 17% 4% 12% 17% Enterprise Collaboration Compliance Preloaded Linux Linux Servers Management Desktops 5% 7% Business Service Identity and Access Management Management 8 © Novell, Inc. All rights reserved.
- 9. Novell Go-to-Market Ecosystem ® TARGET CUSTOMERS Large Very Large ROUTES TO MARKET (500 – 4999 employees) (5000+ ng employees) gi m ENTERPRISE MARKET ECOSYSTEM er d ste Em lou sy Accenture C co Atos Origin Consulting, Systems Integration Vendors E Infosys s d or n ACS ut r s a s t i d on Di ov ti rib e Pr olu SAP Application Vendors S IBM MSFT HP eb d W an Oracle ct Novell Systems Software Vendors Te r e le Di EMC (VMware) Cisco Dell Hardware Vendors 9 © Novell, Inc. All rights reserved.
- 10. 2010 Corporate Objectives 1 Become the Leader in Intelligent Workload Management 2 Grow Invoicing and Expand Margin 3 Retain and Acquire Customers by Leveraging Partners 10 © Novell, Inc. All rights reserved.
- 11. Novell Addresses ® Today's Customer Challenges
- 12. Physical, Virtual and Cloud Are All Relevant for the Next Decade Percent of enterprise workloads that will run in physical, virtual and cloud environments 12 © Novell, Inc. All rights reserved. Source: IDC & Gartner estimates
- 13. Security Remains the Primary Concern for Cloud Computing Question: Rate the challenges/issues of the cloud/on-demand model (1=not significant, 5=very significant) Security Performance Availability Hard to integrate with in-house IT Not enough ability to customize Worried cloud will cost more Bringing back in-house may be difficult Not enough major suppliers yet Percent Responding 3, 4 or 5 13 © Novell, Inc. All rights reserved. Source: Frank Gens and IDC Enterprise Panel, 2009
- 14. CIOs Need a Consistent IT Process A secure, pragmatic approach to managing multiple platforms and evolving business models GOVERNANCE AND COMPLIANCE Business Business Business Service Service Service Software as Management Management Management a Service IT Service IT Service IT Service Platform as Management Management Management a Service Infrastructure Existing Virtualized New as a Service Internal Internal External Capacity Capacity Capacity On-Premise Computing External Cloud 14 © Novell, Inc. All rights reserved. Firewall
- 16. Intelligent Workload Management Intelligent workload management enables IT organizations to manage and optimize computing resources in a policy-driven, secure and compliant manner across physical, virtual and cloud Intelligent environments to deliver business WORKLOAD services for end customers. Management 16 © Novell, Inc. All rights reserved.
- 17. The Intelligent Workload Management Lifecycle Customized Security and Build Operating Compliance Management Secure System Service Manage Resource Management Management Measure Both Intelligent and Standard Workloads Across Physical, Virtual, and Cloud Environments 17 © Novell, Inc. All rights reserved.
- 18. Novell Differentiation: Integrating Identity into Management General Purpose Customized Operating Operating System System Security and Compliance Security and Management Resource Compliance Management Management Resource Management Service Service Management Management Identity-Managed Isolated Identity Awareness 18 © Novell, Inc. All rights reserved.
- 19. How Novell Delivers Intelligent Workload Management Build Secure Manage Measure SUSE Linux ® Novell Identity ® PlateSpin Migrate ® Novell Business Service ® Enterprise Server Manager Manager PlateSpin Orchestrate ® SUSE Studio ® Novell Access ® Novell Business Service ® Manager ™ Novell ZENworks ® ® Level Manager ™ SUSE Linux ® Configuration Enterprise JeOS Novell Identity ® Management Novell Business ® Manager Roles Experience Manager ™ Novell ZENworks ® ® Based Provisioning PlateSpin Recon ® Configuration Module Novell myCMDB ® ™ Management PlateSpin Protect ® Novell Access ® Novell Sentinel ® ™ Governance Suite Novell Cloud Manager SUSE Appliance ® Novell Sentinel Log ® ™ Toolkit Novell Privileged PlateSpin “BlueStar” ® Manager User Manager Novell “Workshop” ® Novell ZENworks ® ® Novell Compliance Novell SecureLogin ® ® “Workbench” Automation Novell Cloud ® Security Service 19 © Novell, Inc. All rights reserved. * Planned Availabilty by end of 2010
- 21. Consistent Margin Improvement over the Past Three Years 2006 2009 Target Gross Margin 71% 80% 80% Expense Margins Sales and Marketing 37% 33% 30-32% Product Development 18% 20% 16-18% General and Administrative 10% 11% 9-10% Non-GAAP 5% 16% 20% Operating Margin 21 © Novell, Inc. All rights reserved.
- 22. Novell Total Revenue ® As of October 31, 2009 22 © Novell, Inc. All rights reserved.
- 23. Product Revenue Growth 54% 42% 23 © Novell, Inc. All rights reserved.
- 24. Novell Summary ® • Competing in growth markets • Strong balance sheet and financial position • Consistent margin improvement • Differentiated corporate strategy • Addressing today's critical customer challenges with continued product innovation • Company will drive growth and raise share price through organic and inorganic moves 24 © Novell, Inc. All rights reserved.
- 25. Reconciliation of GAAP to Non-GAAP Operating Margin Fiscal Year Ended Oct 31, 2006 Oct 31, 2009 GAAP income (loss) from operations $ (42,194) $ (206,492) Operating m argin % -4.6% -23.9% Adjustments: Stock -based compensation expense: Cost of revenue 4,096 2,649 Sales and marketing 11,533 7,015 Product development 8,226 9,332 General and administrative 11,147 6,885 Sub-total 35,002 25,881 Acquisition-related intangible asset amortization: Cost of revenue 4,603 9,984 Sales and marketing 1,087 7,296 Product development 5,911 - Sub-total 11,601 17,280 Other operating expenses (income): Restructuring expenses 4,405 25,200 Purchased in-process research and development 2,110 - Net gain on sale of property, plant and equipment (5,968) (2,199) Litigation-related expense (income) 22,775 - IT outsourcing transition costs - 173 Executive termination benefits 9,409 - (Gain) loss on sale of subsidiaries 8,273 (16) Impairment of intangible assets 1,230 279,135 Stock-based compensation review expenses 1,890 - Sub-total 44,124 302,293 Total operating adjustments 90,727 345,454 Non-GAAP income from operations $ 48,533 $ 138,962 Operating m argin % 5.3% 16.1% 25 © Novell, Inc. All rights reserved. Revisions were made to prior period amounts in order to conform to the current period's presentation
- 27. Unpublished Work of Novell, Inc. All Rights Reserved. This work is an unpublished work and contains confidential, proprietary, and trade secret information of Novell, Inc. Access to this work is restricted to Novell employees who have a need to know to perform tasks within the scope of their assignments. No part of this work may be practiced, performed, copied, distributed, revised, modified, translated, abridged, condensed, expanded, collected, or adapted without the prior written consent of Novell, Inc. Any use or exploitation of this work without authorization could subject the perpetrator to criminal and civil liability. General Disclaimer This document is not to be construed as a promise by any participating company to develop, deliver, or market a product. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. Novell, Inc. makes no representations or warranties with respect to the contents of this document, and specifically disclaims any express or implied warranties of merchantability or fitness for any particular purpose. The development, release, and timing of features or functionality described for Novell products remains at the sole discretion of Novell. Further, Novell, Inc. reserves the right to revise this document and to make changes to its content, at any time, without obligation to notify any person or entity of such revisions or changes. All Novell marks referenced in this presentation are trademarks or registered trademarks of Novell, Inc. in the United States and other countries. All third-party trademarks are the property of their respective owners.