Successful acquisition of InterVideo drives 47% increase in revenue and $2.3 million in GAAP net income
OTTAWA, July 12 /CNW/ - Corel Corporation (NASDAQ:CREL; TSX:CRE) today reported financial results for its second quarter ended May 31, 2007. Revenues in the second quarter of fiscal 2007 were $65.0 million, an increase of 47% over revenues of $44.2 million in the second quarter fiscal 2006. GAAP net income in the second quarter of fiscal 2007 was $2.3 million, or $0.09 per share, compared to a GAAP net loss of $4.0 million, or $(0.19) per share, in the second quarter of fiscal 2006.
Non-GAAP adjusted net income for the second quarter fiscal 2007 was $9.8 million, or $0.39 per diluted share, compared to non-GAAP adjusted net income for the second quarter of fiscal 2006 of $8.4 million, or $0.38 per diluted share. Non-GAAP adjusted EBITDA in the second quarter of 2007 was $15.2 million, compared to $13.7 million in the second quarter of fiscal 2006.
"We are pleased with our performance in the second quarter, as we continue to execute our key strategies and demonstrate our ability to generate attractive financial returns for our shareholders," said David Dobson, CEO of Corel Corporation. "We are realizing many of the anticipated benefits from the acquisition of InterVideo and Ulead, including increased revenue contribution from a broader mix of OEM partners as well as a more diverse mix of revenue by geography. I am pleased with the progress we have made so far as we continue to execute on our core strategic initiatives and expand into the digital media market."
Revenues for the six months ended May 31, 2007 were $117.7 million, an increase of 33% over revenues of $88.5 million for the six months ended May 31, 2006. GAAP net loss for six months ended May 31, 2007 was $9.6 million, or $(0.39) per share, compared to a GAAP net loss of $5.6 million, or $(0.28) per share, for the six months ended May 31, 2006.
Non-GAAP adjusted net income for the six months ended May 31, 2007 was $12.6 million, or $0.50 per diluted share, compared to non-GAAP adjusted net income for the six months ended May 31, 2006 of $15.3 million, or $0.72 per diluted share. Non-GAAP adjusted EBITDA for the six months ended May 31, 2007 was $24.0 million, compared to $28.1 million for the six months ended May 31, 2006.
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.
Financial Guidance
Third Quarter Fiscal 2007 Guidance
Corel provided guidance for the third quarter ending August 31, 2007. The Company currently expects:
-- Revenue in the range of $60 million to $62 million.
-- GAAP net loss of $0.5 million to net income $1.0 million and non-GAAP adjusted net income in the range of $7.0 million to $8.5 million.
-- GAAP earnings per share in the range of $(0.02) to $0.04 and non-GAAP earnings per share in the range of $0.27 to $0.33.
Fiscal 2007 Guidance
Corel provided guidance for the year ending November 30, 2007.
The Company currently expects:
-- Revenue in the range of $247 million to $253 million
-- GAAP net loss of $4.0 million to $2.0 million and non-GAAP adjusted net income of $34 million to $36 million.
-- GAAP loss per share of $(0.15) to $(0.08) and non-GAAP earnings per share of $1.30 to $1.40.
Corel will host a conference call to discuss its financial results at 4:30 p.m. Eastern Time today. To access the conference call, please dial (800) 817-4887 or (913) 981-4913. 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. An audio replay of the call will be available between 7:30 p.m. (EDT) July 12, 2007 and midnight (EDT) July 26, 2007 by calling (888) 203-1112 or (719) 457-0820, Passcode: 1434033. The replay will also be available on our Investor Relations website 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 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. In addition, we face risks related to the acquisition of InterVideo, Inc., including the risk that disruption from the transaction may make it more difficult to maintain relationships with customers, employees, or suppliers. We face potential claims from third parties who may hold patent and other intellectual property rights which purport to cover various aspects of our products and from certain of our customers who may be entitled to indemnification from us in respect of potential claims they may receive from third parties related to their use or distribution of our products.
These and other risks, uncertainties and other important factors are described in Corel's Annual Report dated February 23, 2007, filed with the Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) and Corel's other filings including Corel's form 10-Q for the quarter ended February 28, 2007 under the caption "Risk Factors" and elsewhere. A copy of the Corel Annual Report and such other filings can be obtained on Corel's website, on the SEC's website at http://www.sec.gov or on the CSA's website at http://www.sedar.com. In addition, these and other risks can be found in InterVideo's previous reports filed with the SEC under the caption "Risk Factors" and elsewhere, including InterVideo's 10-Q for the quarter ended September 30, 2006, which can be found on InterVideo's website or on the SEC's website at http://www.sec.gov. 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 developer of graphics, productivity and digital media software with more than 100 million users worldwide. The Company's product portfolio includes some of the world's most popular and widely recognized software brands including CorelDRAW(R) Graphics Suite, Corel(R) Paint Shop Pro(R), Corel(R) Painter(TM), Corel DESIGNER(R), Corel(R) WordPerfect(R) Office, WinZip(R) and iGrafx(R). In 2006, Corel acquired InterVideo, makers of WinDVD(R), and Ulead, a leading developer of video, imaging and DVD authoring software. Designed to help people become more productive and express their creative potential, Corel's software strives to set a higher standard for value with full-featured products that are easier to learn and use. The industry has responded with hundreds of awards recognizing Corel's leadership in software innovation, design and value.
Corel's products are sold in more than 75 countries through a well-established network of international resellers, retailers, original equipment manufacturers, online providers and Corel's global websites. The Company's headquarters are located in Ottawa, Canada with major offices in the United States, United Kingdom, Germany, China, Taiwan and Japan. Corel's stock is traded on the NASDAQ under the symbol CREL and on the TSX under the symbol CRE.
(C) 2007 Corel Corporation. All rights reserved. Corel, CorelDRAW, Paint Shop Pro, Painter, Corel DESIGNER, WordPerfect, WinZip, iGrafx, the Corel logo, InterVideo, Ulead and WinDVD 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.
Corel Corporation
Quarterly Financial results
For the quarter ended May 31, 2007
(in thousands, except per share data; unaudited)
Consolidated Condensed Statement of Operations
------------------ ------------------
Three Months ended Six Months ended
May 31, May 31,
2007 2006 2007 2006
------------------ ------------------
Revenues - Product $ 59,553 $ 39,151 $106,857 $78,649
Revenues - Maintenance and
services 5,479 5,059 10,809 9,848
--------------------------------------------------- ------------------
Total revenues 65,032 44,210 117,666 88,497
--------------------------------------------------- ------------------
Cost of revenues - Product 14,010 5,049 22,497 10,054
Cost of revenues - Maintenance
and services 221 276 419 590
Amortization of intangible
assets 6,373 2,648 12,130 9,275
--------------------------------------------------- ------------------
Total cost of revenues 20,604 7,973 35,046 19,919
--------------------------------------------------- ------------------
Gross margin 44,428 36,237 82,620 68,578
--------------------------------------------------- ------------------
Operating expenses
Sales and marketing 17,492 14,023 34,596 28,527
Research and development 10,697 6,640 22,041 12,821
General and administration 9,187 6,193 18,282 11,588
Acquired in-process research
and development - - 7,831 -
InterVideo integration
expense 860 - 1,645 -
Restructuring - 251 - 811
--------------------------------------------------- ------------------
Total operating expenses 38,236 27,107 84,395 53,747
--------------------------------------------------- ------------------
Income (loss) from operations 6,192 9,130 (1,775) 14,831
Other expenses (income)
Loss on debt retirement - 8,275 - 8,275
Interest expense, net 3,718 3,207 7,639 7,070
Amortization of deferred
financing fees 269 357 534 801
Other non-operating (income)
expense 479 (528) (153) (648)
--------------------------------------------------- ------------------
Income (loss) before income
taxes 1,726 (2,181) (9,795) (667)
Income tax recovery (provision) 587 (1,791) 232 (4,942)
--------------------------------------------------- ------------------
Net income (loss) $ 2,313 $ (3,972) $ (9,563) $(5,609)
--------------------------------------------------- ------------------
Net income (loss) per share:
Basic $ 0.09 $ (0.19) $ (0.39) $ (0.28)
Fully diluted $ 0.09 $ (0.19) $ (0.39) $ (0.28)
Weighted average number of
shares:
Basic 24,817 21,086 24,722 20,293
Fully diluted 25,284 21,086 24,722 20,293
Consolidated Condensed Balance Sheet
--------------------------
As of May 31, November 30,
2007 2006
--------------------------
Assets
Current assets:
Cash and cash equivalents $ 27,410 $ 51,030
Restricted cash 717 717
Accounts receivable
Trade, net 21,177 18,150
Other 689 808
Inventory 1,041 914
Income taxes recoverable 1,693 -
Prepaids and other current assets 5,230 2,300
--------------------------------------------------------------------
Total current assets 57,957 73,919
Investments 203 203
Capital assets 8,380 3,651
Intangible assets 104,141 37,831
Goodwill 84,261 9,850
Deferred financing charges and other
long-term assets 5,643 5,232
----------------------------------------------------------------------
Total assets $ 260,585 $ 130,686
----------------------------------------------------------------------
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable and accrued
liabilities $ 57,063 $ 28,220
Due to related parties - 167
Operating line of credit 13,000 -
Income taxes payable - 235
Deferred revenue 10,778 12,719
Current portion of long-term debt 2,196 1,426
Current portion of obligation under
capital leases 509 -
Deferred income tax liability 4,972 -
----------------------------------------------------------------------
Total current liabilities 88,518 42,767
Deferred revenue 1,995 2,015
Deferred income tax liability 13,550 -
Obligation under capital leases 1,989 -
Income taxes payable 13,122 8,488
Long-term debt 157,447 89,223
----------------------------------------------------------------------
Total liabilities 276,621 142,493
----------------------------------------------------------------------
Shareholders' deficit
Share capital 35,177 30,722
Additional paid-in capital 5,491 4,612
Accumulated other comprehensive loss (46) (46)
Deficit (56,658) (47,095)
----------------------------------------------------------------------
Total shareholders' deficit (16,036) (11,807)
----------------------------------------------------------------------
----------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 260,585 $ 130,686
----------------------------------------------------------------------
Consolidated Condensed Statement of Cash Flows
-------------------- ---------------------
Three Months ended Six Months ended May
May 31, 31,
2007 2006 2007 2006
-------------------- ---------------------
Cash flow from operating
activities
Net income (loss) $ 2,313 $ (3,972) $ (9,563) $ (5,609)
Depreciation and
amortization 969 378 1,671 776
Amortization of deferred
financing fees 269 357 534 801
Amortization of intangible
assets 6,373 2,648 12,130 9,275
Stock-based compensation 1,290 794 2,298 1,646
Provision for bad debts 49 52 65 174
Deferred income taxes (1,280) 201 (2,315) 636
Acquired in-process
research and development - - 7,831 -
Unrealized loss on forward
exchange contracts - 193 35 221
Loss on early retirement
of debt - 8,275 - 8,275
Loss on disposal of fixed
assets 54 - 54 -
Gain on interest rate swap
recorded at fair value (391) - (582) -
Change in operating assets
and liabilities (12,862) 815 3,066 (528)
--------------------------- -------------------- ---------------------
Cash flow provided by (used
in) operating activities (3,216) 9,741 15,224 15,667
--------------------------- -------------------- ---------------------
Cash flow from financing
activities
Proceeds from operating
line of credit 5,000 - 48,000 -
Repayments on operating
line of credit (15,000) - (35,000) -
Proceeds from long-term
debt - 90,000 70,000 90,000
Repayments of long-term
debt (399) (140,091) (1,080) (148,729)
Financing fees incurred (5) (5,875) (1,677) (7,638)
Net proceeds from public
offering - 72,538 - 72,538
Proceeds from exercise of
stock options 1,387 1 2,689 1
Dividends paid - (7,500) - (7,500)
Other financing activities 51 (492) 51 (1,098)
--------------------------- -------------------- ---------------------
Cash flow provided by (used
in) financing activities (8,966) 8,581 82,983 (2,426)
--------------------------- -------------------- ---------------------
Cash flow from investing
activities
Purchase of InterVideo
Inc, net of cash acquired (786) - (121,154) -
Purchase of long lived
assets, net of proceeds (608) (425) (718) (855)
--------------------------- -------------------- ---------------------
Cash flow used in investing
activities (1,394) (425) (121,872) (855)
--------------------------- -------------------- ---------------------
Effect of exchange rate
changes on cash and cash
equivalents 80 (74) 45 (111)
Increase (decrease) in cash
and cash equivalents (13,496) 17,823 (23,620) 12,275
Cash and cash equivalents,
beginning of period 40,906 15,198 51,030 20,746
--------------------------- -------------------- ---------------------
Cash and cash equivalents,
end of period $ 27,410 $ 33,021 $ 27,410 $ 33,021
--------------------------- -------------------- ---------------------
Non-GAAP Results
(In thousands, except per share data)
------------------- -----------------
Three Months ended Six Months ended
May 31, May 31,
2007 2006 2007 2006
------------------- -----------------
Non-GAAP Adjusted Net Income
Calculation:
Net income (loss) $ 2,313 $(3,972) $(9,563) $(5,609)
Amortization of intangible
assets 6,373 2,648 12,130 9,275
Tax benefit on amortization
of intangible assets (1,280) (2,315)
Stock-based compensation 1,290 794 2,298 1,646
Restructuring - 251 - 811
Reorganization - - - 117
InterVideo integration
expense 860 - 1,645 -
Acquired in-process research
and development - - 7,831 -
Loss on debt retirement - 8,275 - 8,275
Amortization of deferred
financing fees 269 357 534 801
------------------------------------------------- -----------------
Non-GAAP Adjusted Net Income $ 9,825 $ 8,353 $12,560 $15,316
------------------------------------------------- -----------------
Percentage of revenue 15.1% 18.9% 10.7% 17.3%
Pro-forma diluted non-GAAP
adjusted net income per
share $ 0.39 $ 0.38 $ 0.50 $ 0.72
Shares used in computing
proforma diluted non-GAAP
adjusted net income per
share 25,284 22,178 25,307 21,386
Non-GAAP Adjusted EBITDA
Calculation:
Cash flow provided by (used
in) operating activities $ (3,216) $ 9,741 $15,224 $15,667
Change in operating assets
and liabilities 12,862 (815) (3,066) 528
Interest expense, net 3,718 3,207 7,639 7,070
Income tax provision (587) 1,791 (232) 4,942
Deferred income taxes 1,280 (201) 2,315 (636)
Provision for bad debts (49) (52) (65) (174)
Unrealized losses on forward
exchange contracts - (193) (35) (221)
Gain on interest rate swap
recorded at fair value 391 - 582 -
Loss on disposal of fixed
assets (54) - (54) -
InterVideo integration
expense 860 - 1,645 -
Restructuring - 251 - 811
Reorganizational costs - - - 117
------------------------------------------------- -----------------
Non-GAAP Adjusted EBITDA $ 15,205 $13,729 $23,953 $28,104
------------------------------------------------- -----------------
Percentage of revenue 23.4% 31.1% 20.4% 31.8%
Other Supplemental Information Revenue by Product Segment Graphics and Productivity $34,517 $34,019 $ 68,582 $70,711 Digital Media 30,515 10,191 49,084 17,786 ------------------------------ ----------------- ------------------ Total $65,032 $44,210 $117,666 $88,497 ------------------------------ ----------------- ------------------ As percentage of revenues Graphics and Productivity 53.1% 76.9% 58.3% 79.9% Digital Media 46.9% 23.1% 41.7% 20.1% ------------------------------ ----------------- ------------------ Total 100.0% 100.0% 100.0% 100.0% ------------------------------ ----------------- ------------------ Revenue by Geography Americas $33,015 $26,919 $ 60,208 $52,582 Europe, Middle East, Africa 17,108 13,681 34,766 29,449 Asia-Pacific 14,909 3,610 22,692 6,466 ------------------------------ ----------------- ------------------ Total $65,032 $44,210 $117,666 $88,497 ------------------------------ ----------------- ------------------ As percentage of revenues Americas 50.8% 60.9% 51.2% 59.4% Europe, Middle East, Africa 26.3% 30.9% 29.5% 33.3% Asia-Pacific 22.9% 8.2% 19.3% 7.3% ------------------------------ ----------------- ------------------ Total 100.0% 100.0% 100.0% 100.0% ------------------------------ ----------------- ------------------ Allocation of Stock-Based Compensation Expense Cost of revenues - Product $ 9 $ 7 $ 18 $ 15 Cost of revenues - Maintenance and service 2 2 4 4 Sales and marketing 311 121 581 312 Research and development 293 53 488 116 General and administration 675 611 1,207 1,199 ------------------------------ ----------------- ------------------ Total $ 1,290 $ 794 $ 2,298 $ 1,646 ------------------------------ ----------------- ------------------
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