novell q2 fy2010 investor presentation
DESCRIPTION
TRANSCRIPT
Novell® Investor RelationsQ2 2010 Update
Revised March 10, 2010APPROVED FOR EXTERNAL USE
© Novell, Inc. All rights reserved.2
Forward Looking InformationThis 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.
© Novell, Inc. All rights reserved.3
GAAP Financial MeasuresWe 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.
2006 2009Gross Margin 69% 78%
Expense MarginsSales and Marketing 38% 34%Product Development 20% 21%General and Administrative 11% 12%Other Operating Expenses 5% 35%
Operating Margin -5% -24%
GAAP Operating Model We also present a projection of our non-GAAP gross margin, sales and marketing expense margin, product development expense margin, general and administrative expense margin and operating margin. These projections are forward-looking, non-GAAP financial measures. The corresponding 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 listed above. We believe that the corresponding GAAP financial 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 above and/or that such expenses or gains are likely to arise outside of the ordinary course of business.
© Novell, Inc. All rights reserved.4
Agenda
Corporate Strategy
Today's Customer Challenges
Intelligent Workload Management
Financial Highlights
Corporate Strategy
© Novell, Inc. All rights reserved.6
Novell® VisionMaking IT Work As OneThrough our infrastructure software and ecosystem of partnerships, Novell harmoniously integrates mixed IT environments, allowing people and technology to work as one.
Novell MissionTo help our clients reduce cost, complexity and risk on virtually any platform
Novell StrategyTo be the industry leader in the new category of intelligent workload management
© Novell, Inc. All rights reserved.7
Data Center End-UserComputing
Novell® Offers 10 Infrastructure Software Solutions
Identity and Security
Virtualization and Workload Management
Enterprise Linux Servers
Business Service Management
OEM
Endpoint Management
Collaboration
Security Management
Compliance Management
Identity and Access Management
Software Appliances
Preloaded Linux Desktops
© Novell, Inc. All rights reserved.8
2010 IDC Projected Market Growth Rates for Our Markets
5%Business ServiceManagement
17%EnterpriseLinux Servers
23%Virtualization andWorkload Management
4%Collaboration
11%EndpointManagement
7%Identity and AccessManagement
12%ComplianceManagement
23%SecurityManagement
17%Preloaded LinuxDesktops
118%SoftwareAppliances
Data Center End-UserComputing
Identity and Security
OEM
© Novell, Inc. All rights reserved.9
Novell® Go-to-Market Ecosystem
Novell
Dell
SAP
AccentureAtos Origin
InfosysACS
EMC(VMware)
Cisco
MSFTIBMHP
Oracle
Consulting, Systems Integration Vendors
Application Vendors
Systems Software Vendors
Hardware Vendors
ENTE
RPR
ISE
MA
RK
ET
ECO
SYS
TEM
TARGET CUSTOMERS
RO
UTE
S T
O M
ARK
ET
Large(500 – 4999 employees)
Very Large(5000+ employees)
Emerging
Cloud
Ecosy
stem
Solution
Provid
ers an
d
Distrib
utors
Direct
and
TeleWeb
© Novell, Inc. All rights reserved.10
2010 Corporate Objectives
1 Become the Leader in Intelligent Workload Management
2 Grow Invoicing andExpand Margin
3 Retain and Acquire Customersby Leveraging Partners
Novell® Addresses Today's Customer Challenges
© Novell, Inc. All rights reserved.12
Physical, Virtual and Cloud Are AllRelevant for the Next Decade
Percent of enterprise workloads thatwill run in physical, virtual and cloud environments
Source: IDC & Gartner estimates
© Novell, Inc. All rights reserved.13
Security Remains the Primary Concern for Cloud Computing
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
Source: Frank Gens and IDC Enterprise Panel, 2009
Question: Rate the challenges/issues of the cloud/on-demand model(1=not significant, 5=very significant)
© Novell, Inc. All rights reserved.14
CIOs Need a Consistent IT ProcessA secure, pragmatic approach to managing multiple platforms and evolving business models
Software asa Service
Platform asa Service
Infrastructureas a Service
GOVERNANCE AND COMPLIANCE
BusinessServiceManagement
IT ServiceManagement
ExistingInternalCapacity
BusinessServiceManagement
IT ServiceManagement
VirtualizedInternalCapacity
BusinessServiceManagement
IT ServiceManagement
NewExternalCapacity
Firewall
External CloudOn-Premise Computing
Intelligent Workload Management
© Novell, Inc. All rights reserved.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 environments to deliver business services for end customers.
IntelligentWORKLOADManagement
© Novell, Inc. All rights reserved.17
The Intelligent WorkloadManagement Lifecycle
ResourceManagement
CustomizedOperatingSystem
ServiceManagement
Security andComplianceManagement
Build
Measure
Secure
Manage
Both Intelligent and Standard Workloads Across Physical, Virtual, and Cloud Environments
© Novell, Inc. All rights reserved.18
ResourceManagement
GeneralPurposeOperatingSystem
ServiceManagement
Security andComplianceManagement
Isolated Identity Awareness
ResourceManagement
CustomizedOperating
System
ServiceManagement
Security andComplianceManagement
Identity-Managed
Novell Differentiation:Integrating Identity into Management
© Novell, Inc. All rights reserved.19
Novell® Identity Manager
Novell® Access Manager™
Novell® Identity Manager Roles Based Provisioning Module
Novell® Access Governance Suite
Novell Privileged User Manager
Novell® SecureLogin®
Novell® Cloud Security Service
How Novell Delivers Intelligent Workload Management
Build Secure Manage MeasureSUSE® Linux Enterprise Server
SUSE® Studio
SUSE® Linux Enterprise JeOS
Novell® ZENworks® Configuration Management
SUSE® Appliance Toolkit
Novell® “Workshop”
Novell® Business Service Manager
Novell® Business Service Level Manager™
Novell® Business Experience Manager™
Novell® myCMDB™
Novell® Sentinel™
Novell® Sentinel™ Log Manager
Novell Compliance Automation
* Planned Availabilty by end of 2010
PlateSpin® Migrate
PlateSpin® Orchestrate
Novell® ZENworks® Configuration Management
PlateSpin® Recon
PlateSpin® Protect
Novell Cloud Manager
PlateSpin® “BlueStar”
Novell® ZENworks®
“Workbench”
Financial Highlights
© Novell, Inc. All rights reserved.21
2006 2009 TargetGross Margin 71% 80% 80%
Expense MarginsSales and Marketing 37% 33% 30-32%Product Development 18% 20% 16-18%General and Administrative 10% 11% 9-10%
5% 16% 20%Non-GAAPOperating Margin
Consistent Margin Improvementover the Past Three Years
© Novell, Inc. All rights reserved.22
Novell® Total Revenue
As of October 31, 2009
© Novell, Inc. All rights reserved.23
Product Revenue Growth
54% 42%
© 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
© Novell, Inc. All rights reserved.25 Revisions were made to prior period amounts in order to conform to the current period's presentation
Reconciliation of GAAP to Non-GAAP Operating Margin
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%
Fiscal Year Ended
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 DisclaimerThis 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.