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Corel Corporation Reports Second Quarter Results; Revenues Increase 11%; GAAP Net Loss of $(0.19) Per Share; Non-GAAP Adjusted Net Income of $0.38 Per Diluted Share
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OTTAWA, June 28 /CNW/ - Corel Corporation (NASDAQ:CREL)(TSX:CRE) today reported financial results for its second quarter ended May 31, 2006. Revenues in the second quarter of fiscal 2006 were $44.2 million, an increase of 11% over revenues of $40.0 million in the second quarter of fiscal 2005. GAAP net loss in the second quarter of fiscal 2006, which includes a one time charge of $8.3 million related to the early retirement of debt, was $(4.0) million, or $(0.19) per share. This compares to net income of $158,000, or $0.01 per share in the second quarter of fiscal 2005. Non-GAAP adjusted net income for the second quarter of fiscal 2006 was $8.4 million, an increase of 11% compared to non-GAAP adjusted net income for the second quarter of fiscal 2005 of $7.5 million, remaining constant at $0.38 per diluted share. Non-GAAP adjusted EBITDA in the second quarter of fiscal 2006 was $13.7 million, a 6% increase compared to $13.0 million in the second quarter of fiscal 2005. A reconciliation of GAAP net income to non-GAAP adjusted net income and non-GAAP adjusted EBITDA is provided in the notes to the financial statements included in this press release. During the quarter, Corel completed its initial public offering and refinanced its credit facilities. Net proceeds to Corel from the offering were $72.5 million. As a result of the offering and related transactions, Corel reduced its outstanding debt at the end of the quarter from $140.0 million to $90.0 million and ended the quarter with $33.0 million in cash and cash equivalents. "Corel's second quarter performance demonstrates the continued strength of our business model and the results we are able to achieve by remaining focused on the needs of our customers and partners," said David Dobson, CEO of Corel Corporation. "With strong revenue performance, new global partnerships, and increasing traction in developing and emerging markets, Corel is successfully executing its strategy to deliver long-term, shareholder value. WinZip's contribution further illustrates the benefits of the Corel acquisition model as we leverage operating efficiencies to drive incremental earnings." Dobson continued, "Corel has proven itself to be a leader in delivering high-value, affordable software that is easy to learn and use. We remain committed to that vision and to delivering a unique customer experience that differentiates Corel in the marketplace. Our new digital imaging platform, code named "Alta," is an example of the innovations we are developing to provide customers and partners with more flexibility, convenience, and control in creating their own digital imaging environment. Corel's employees will continue to work closely with our customers and partners to deliver software that responds to their evolving needs."
Third Quarter Fiscal 2006 Guidance
Corel provided guidance for the third quarter ending August 31, 2006. <<
The Company currently expects:
Revenue in the range of $39 million to $41 million.
GAAP net income of $3.4 million to $4.7 million and non-GAAP adjusted net income of $7.2 million to $8.5 million.
GAAP EPS of $0.13 to $0.18 per share and non-GAAP EPS of $0.28 to $0.33 per share. >>
Fiscal 2006 Guidance
Corel provided guidance for the year ending November 30, 2006. <<
The Company currently expects:
Revenue in the range of $172 million to $175 million
GAAP net income of $4.7 million to $7.1 million and non-GAAP adjusted net income of $33.0 million to $35.4 million.
GAAP EPS of $0.20 to $0.30 per share and non-GAAP EPS of $1.40 to $1.50 per share. >>
Corel will host a conference call to discuss the results at 4:30 p.m. Eastern Time today. To access the conference call, please dial (800) 810-0924 or (913) 981-4900. A live webcast and replay of the call will also be available through Corel's Investor Relations website at http://investor.corel.com/events.cfm.
Forward-Looking Statements:
This news release includes forward-looking statements that are based on certain assumptions and reflect our current expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements to differ materially from any future results, performance, or achievements discussed or implied by such forward-looking statements. Such risks include competitive threats from well-established software companies that have significantly greater market share and resources than us, new entrants that benefit from industry trends, such as the increasing importance of Internet distribution and open source software, and from online services companies that are increasingly seeking to provide software products at little or no incremental cost to their customers to expand their Internet presence and build consumer loyalty. We rely on a small number of key strategic relationships for a significant percentage of our revenue and these relationships can be modified or terminated at any time. In addition, our core products have been marketed for many years and the packaged software market in North America and Europe is relatively mature and characterized by modest growth. Accordingly, we must successfully complete acquisitions, penetrate new markets or increase penetration of our installed base to achieve revenue growth. These and other risks, uncertainties and other important factors are described in our Prospectus dated April 25, 2006, filed with the Securities and Exchange Commission pursuant to Rule 462(b) of the rules and regulations under the Securities Act of 1933. A copy of the Prospectus can be obtained on our website, or at www.sec.gov. Such risks are also included in our Canadian supplemented PREP prospectus dated April 25, 2006, available at http://www.sedar.com. Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based.
Financial Presentation and Use of Non-GAAP Measures:
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, which differ in certain material respects from Canadian generally accepted accounting principles. In addition, our financial statements and information in this release are presented in U.S. Dollars, unless otherwise indicated. This news release includes certain non-GAAP financial measures, such as adjusted net income and adjusted EBITDA. We use these non-GAAP financial measures to confirm our compliance with covenants contained in our debt facilities, as supplemental indicators of our operating performance and to assist in evaluation of our liquidity. These measures do not have any standardized meanings prescribed by GAAP and therefore are not comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance or changes in cash flows calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the closes GAAP measures are set out in the notes to the financial statements attached to this news release.
About Corel Corporation
Corel is a leading global packaged software company with an estimated installed base of over 40 million users. The Company provides high quality, affordable and easy-to-use productivity, graphics and digital imaging software and enjoys a favorable market position among value-conscious consumers and small businesses. Its products are sold in over 75 countries through a scalable distribution platform comprised of original equipment manufacturers (OEMs), Corel's international websites, and a global network of resellers and retailers. The Company's product portfolio features well-established, globally recognized brands including CorelDRAW(R) Graphics Suite, Corel(R) WordPerfect(R) Office, WinZip(R), Corel(R) Paint Shop(R) Pro, and Corel Painter(TM). To learn more about Corel, please visit www.corel.com.
(C) 2006 Corel Corporation. All rights reserved. Corel, CorelDRAW, WordPerfect, WinZip, Paint Shop, Painter, and the Corel logo are trademarks or registered trademarks of Corel Corporation and/or its subsidiaries. All other product, font and company names and logos are trademarks or registered trademarks of their respective companies.
CRELF <<
Corel Corporation Quarterly Financial Results For the quarter ended May 31, 2006 (in thousands, except per share data; unaudited)
Consolidated Condensed Statement of Operations
Three Months ended Six Months ended May 31, May 31, 2006 2005 2006 2005 Revenues - Product $39,151 $36,428 $78,649 $ 72,510 Revenues - Maintenance and service 5,059 3,573 9,848 7,479 Total revenues 44,210 40,001 88,497 79,989
Cost of revenues - Product 5,049 4,097 10,054 8,805 Cost of revenues - Maintenance and service 276 293 590 641 Amortization of intangible assets 2,648 6,636 9,275 12,835 Total cost of revenues 7,973 11,026 19,919 22,281
Gross margin 36,237 28,975 68,578 57,708
Operating expenses Sales and marketing 14,023 12,164 28,527 24,988 Research and development 6,640 5,982 12,821 11,653 General and administrative 6,193 4,654 11,588 10,313 Restructuring 251 72 811 612 Total operating expenses 27,107 22,872 53,747 47,566 Income from operations 9,130 6,103 14,831 10,142
Other expenses (income) Loss on debt retirement 8,275 6 8,275 3,937 Interest expense, net 3,207 3,407 7,070 5,377 Amortization of deferred financing fees 357 504 801 804 Other non-operating expense (income) (528) 193 (648) 371 Income (loss) before taxes (2,181) 1,993 (667) (347) Income tax expense 1,791 1,835 4,942 2,015 Net income (loss) $(3,972) $ 158 $(5,609) $ (2,362)
Net income (loss) per share Basic and diluted Class A $ N/A $ (0.05) N/A $ (1.69) Class B N/A (0.05) N/A (1.69) WinZip Common N/A 38.95 N/A 29.20 Corel Common (0.19) N/A (0.28) N/A Pro-forma basic and diluted (0.19) 0.01 (0.28) (0.16)
Weighted average number of shares: Shares used in basic and diluted per share amounts Class A N/A 3,736 N/A 3,736 Class B N/A 8,321 N/A 8,321 WinZip Common N/A 20 N/A 20 Corel Common 21,086 N/A 20,293 N/A Shares used in pro-forma per share amounts Basic 21,086 19,485 20,293 19,485 Diluted 21,086 19,965 20,293 19,485
Consolidated Condensed Balance Sheet
May 31, November 30, 2006 2005 Assets Current assets: Cash and cash equivalents $ 33,021 $ 20,746 Restricted cash 717 966 Accounts receivable Trade, net 16,763 19,342 Due from related parties - 667 Other 648 311 Inventory 1,365 726 Deferred tax assets, current portion 240 592 Prepaids and other current assets 2,242 2,343 Total current assets 54,996 45,693
Investments 262 334 Capital assets 3,536 3,532 Intangible assets 42,813 52,397 Goodwill 9,850 9,850 Deferred Income tax assets - 284 Deferred financing charges and other long- term assets 4,199 8,746 Total assets $ 115,656 $ 120,836
Liabilities and shareholders' deficit Current liabilities: Accounts payable & accrued liabilities $ 26,650 $ 30,152 Due to related party - 334 Income taxes payable 13,472 10,773 Deferred revenue 10,107 11,755 Current portion of promissory note 532 1,170 Current portion of term loan payable 900 15,764 Total current liabilities 51,661 69,948
Deferred revenue 2,159 2,085 Term loan payable 89,100 132,965 Promissory note and other long-term liabilities 797 1,072 Total liabilities 143,717 206,070
Shareholders' deficit Share capital 30,721 (73,793) Additional paid-in capital 3,160 7,427 Accumulated other comprehensive income 14 85 Deficit (61,956) (18,953) Total shareholders' deficit (28,061) (85,234)
Total liabilities and shareholders' deficit $ 115,656 $ 120,836
Consolidated Condensed Statement of Cash Flows
Three Months ended Six Months ended May 31, May 31, 2006 2005 2006 2005 Cash flow from operating activities Net income (loss) $(3,972) $158 $(5,609) $(2,362) Depreciation 378 307 776 769 Amortization of deferred financing fees 357 504 801 804 Amortization of intangible assets 2,648 6,636 9,275 12,835 Stock-based compensation 794 123 1,646 239 Accrued interest 352 166 (261) 533 Provision for bad debts 52 27 174 193 Deferred income taxes 201 19 636 313 Unrealized losses on foreign exchange contracts 193 87 221 293 Gain on disposal of fixed assets - (28) - (14) Loss on early retirement of debt 8,275 6 8,275 3,937 Gain on disposal of investments - (71) - (71) Operating Assets 463 469 (267) (109) Cash flow provided by operating activities 9,741 8,403 15,667 17,360
Cash flow from financing activities Restricted cash - (13) - 1,357 Proceeds from term loan 90,000 - 90,000 130,000 Repayments of term loan (140,091) - (148,729) (64,305) Financing fees incurred (5,875) (668) (7,638) (7,668) Proceeds from public offering 72,538 - 72,538 - Proceeds from issuance of common shares 1 - 1 - Paid up capital distribution - - - (83,113) Dividends (7,500) (4,000) (7,500) (6,135) Other financing (492) (3,250) (1,098) (2,750) Cash flow provided by (used in) financing activities 8,581 (7,931) (2,426) (32,614)
Cash flow from investing activities Proceeds from redemption of investments - 71 - 10,058 Acquisition of Jasc - (369) - (184) Purchase of long lived assets, net of proceeds (425) (169) (855) (468) Cash flow provided by (used in) investing activities (425) (467) (855) 9,406
Effect of exchange rate changes on cash (74) (10) (111) (19)
Increase (decrease) in cash and cash equivalents 17,823 (5) 12,275 (5,867) Opening cash and cash equivalents 15,198 5,695 20,746 11,557 Closing cash and cash equivalents $33,021 $5,690 $33,021 $5,690
Non-GAAP Results (In thousands, except per share data)
Three Months ended Six Months ended May 31, May 31, 2006 2005 2006 2005
Non-GAAP Adjusted Net Income Calculation: Net income (loss) $(3,972) $ 158 $(5,609) $(2,362) Amortization of intangible assets 2,648 6,636 9,275 12,835 Stock based compensation 794 123 1,646 239 Restructuring 251 72 811 612 Reorganization costs - - 117 883 Amortization of deferred financing fees 357 504 801 804 Loss on debt retirement 8,275 6 8,275 3,937 Non-GAAP Adjusted Net Income $ 8,353 $ 7,499 $15,316 $16,948 Percentage of revenue 18.9% 18.7% 17.3% 21.2%
Pro-forma diluted non-GAAP adjusted net income per share $ 0.38 $ 0.38 $ 0.72 $ 0.85
Shares used in computing pro-forma diluted non-GAAP adjusted net income per share 22,178 19,965 21,386 19,953
Non-GAAP Adjusted EBITDA Calculation: Cash flow provided by operating activities $ 9,741 $ 8,403 $15,667 $17,360 Change in operating assets and liabilities (463) (469) 267 109 Interest Expense 3,207 3,407 7,070 5,377 Income tax expense 1,791 1,835 4,942 2,015 Accrued interest (352) (166) 261 (533) Provision for bad debts (52) (27) (174) (193) Unrealized losses on foreign exchange contracts (193) (87) (221) (293) Deferred income taxes (201) (19) (636) (313) Gain on disposal of fixed assets - 28 - 14 Restructuring 251 72 811 612 Reorganizational costs - - 117 883 Non-GAAP Adjusted EBITDA $13,729 $ 12,977 $28,102 $25,038 Percentage of revenues 31.1% 32.4% 31.8% 31.3%
Other Supplemental Information
Revenues by Product Segment Productivity $19,173 $ 16,897 $38,963 $31,900 Graphics and Digital Imaging 25,037 23,104 49,534 48,089 Total $44,210 $ 40,001 $88,497 $79,989
As percentage of revenues Productivity 43.4% 42.2% 44.0% 39.9% Graphics and Digital Imaging 56.6% 57.8% 56.0% 60.1% Total 100.0% 100.0% 100.0% 100.0%
Revenues by Geography Americas $26,919 $ 23,270 $52,582 $47,821 Europe, Middle East, Africa 13,681 13,671 29,449 27,097 Asia-Pacific 3,610 3,060 6,466 5,071 Total $44,210 $ 40,001 $88,497 $79,989
As percentage of revenues Americas 60.9% 58.2% 59.4% 59.8% Europe, Middle East, Africa 30.9% 34.2% 33.3% 33.9% Asia-Pacific 8.2% 7.6% 7.3% 6.3% Total 100.0% 100.0% 100.0% 100.0%
Allocation of Stock-Based Compensation Expense Cost of revenues - Product $ 7 $ 4 $ 15 $ 8 Cost of revenues - Maintenance and service 2 1 4 2 Sales and marketing 121 53 312 102 Research and development 53 36 116 71 General and administrative 611 29 1,199 56 Total $ 794 $ 123 $ 1,646 $ 239 >>