Corel Corporation Reports First Quarter 2008 Financial Results

Corel Corporation (NASDAQ:CREL) (TSX:CRE) today reported financial results for its first quarter ended February 29, 2008. Revenues in the first quarter of fiscal 2008 were $65.5 million, an increase of 25 percent over revenues of $52.6 million in the first quarter of fiscal 2007. First quarter 2008 revenue includes organic revenue growth of 3 percent, which excludes revenue from products acquired from InterVideo and Ulead. GAAP net loss in the first quarter of fiscal 2008 was $30,000, or $(0.00) per basic and diluted share, compared to GAAP net loss of $11.9 million, or $(0.48) per basic and diluted share, in the first quarter of fiscal 2007. Non-GAAP adjusted net income for the first quarter of fiscal 2008 was $6.7 million, or $0.26 per diluted share, compared to non-GAAP adjusted net income for the first quarter of fiscal 2007 of $2.7 million, or $0.11 per diluted share. Non-GAAP adjusted EBITDA in the first quarter of 2008 was $13.3 million, an increase of 52 percent over $8.7 million in the first quarter of 2007. "Corel had a solid first quarter with strong results across our diverse mix of products, channels and geographies," said David Dobson, Chief Executive Officer, Corel Corporation. "Having successfully completed the integration of InterVideo and Ulead, we are well-positioned to take advantage of the growing market opportunity for our extensive Digital Media portfolio. At the same time, Corel’s Graphics and Productivity products enjoyed a strong quarter, highlighted by the first quarter release of CorelDraw Graphics Suite X4 which recorded strong results, particularly in Europe and emerging markets. Additionally, revenue from emerging markets grew more than 40 percent year over year as we continue to expand our presence in these important growing markets through our diverse mix of distribution channels.” Financial Guidance Second Quarter Fiscal 2008 Guidance Corel provided guidance for the second quarter ending May 31, 2008. The Company currently expects: -- Revenue in the range of $66 million to $68 million. -- GAAP net income in the range of $1.0 million to $2.5 million and non-GAAP adjusted net income in the range of $8.5 million to $10.0 million. -- GAAP earnings per share in the range of $0.04 to $0.09 and non-GAAP earnings per share in the range of $0.32 to $0.38. Fiscal 2008 Guidance Resulting guidance for the year ending November 30, 2008 is as follows: -- Revenue in the range of $263 million to $275 million. -- GAAP net income of $9.5 million to $15.0 million and non-GAAP adjusted net income of $40.5 million to $46.0 million. -- GAAP income per share of $0.34 to $0.55 and non-GAAP earnings per share of $1.50 to $1.70. 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 (877) 419-6600 or (719) 325-4870 approximately 5 minutes prior to the 4:30 p.m. ET start time. A live webcast will also be available through Corel's Investor Relations website at http://investor.corel.com/events.cfm. Following the call, an audio replay will be available between 7:30 p.m. ET April 3, 2008 and 11:59 p.m. ET April 16, 2008 from Corel's Investor Relations website or by calling (888) 203-1112 or (719) 457-0820, Passcode: 8743508. 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 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 8, 2008, filed with the Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) 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. 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 closest GAAP measures are set out in the notes to the financial statements attached to this news release. About Corel 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® Graphics Suite, Corel® Paint Shop Pro® Photo, Corel® Painter(TM), Corel DESIGNER®, Corel® WordPerfect® Office, WinZip®, WinDVD® and iGrafx®. 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. www.corel.com ©2008 Corel Corporation. All rights reserved. Corel, Corel DESIGNER, CorelDRAW, Paint Shop Pro, Painter, Photo Express, WinDVD, iGrafx, InterVideo, Ulead, WordPerfect, WinDVD, WinZip and the Corel logo are trademarks or registered trademarks of Corel Corporation and/or its subsidiaries. All other product names and any registered and unregistered trademarks mentioned are used for identification purposes only and remain the exclusive property of their respective owners. CRELF Corel Corporation Quarterly Financial results For the quarter ended Feb 29, 2008 (in thousands, except per share data; unaudited)         Consolidated Condensed Statement of Operations     Three Months ended February 29, February 28,   2008     2007     Revenues - Product $ 59,362 $ 47,304 Revenues - Maintenance and services   6,182     5,330   Total revenues   65,544     52,634     Cost of revenues - Product 15,227 8,497 Cost of revenues - Maintenance and services 167 198 Amortization of intangible assets   6,414     5,757   Total cost of revenues 21,808 14,452             Gross margin   43,736     38,182     Operating expenses Sales and marketing 19,684 17,275 Research and development 12,091 11,596 General and administration 8,811 8,662 Acquired in-process research and development - 7,831 InterVideo integration expense - 785   Restructuring   178     -   Total operating expenses   40,764     46,149   Income (loss) from operations 2,972 (7,967 )   Other expenses (income) Interest Income (120 ) (364 ) Interest expense 4,408 4,285 Amortization of deferred financing fees 270 265   Other non-operating income   (1,464 )   (632 ) Loss before income taxes (122 ) (11,521 ) Income tax expense (recovery)   (92 )   355   Net Loss $ (30 ) $ (11,876 )   Net loss per share: Basic $ (0.00 ) $ (0.48 ) Fully diluted $ (0.00 ) $ (0.48 ) Weighted average number of shares: Basic 25,463 24,627 Fully diluted 25,463 24,627 Consolidated Condensed Balance Sheet           February 29, November 30,   2008     2007   Assets Current assets: Cash and cash equivalents $ 28,835 $ 24,615 Restricted cash 161 217 Accounts receivable Trade, net 29,795 41,092 Other 2,529 118 Inventory 858 729 Income taxes recoverable 922 1,470   Prepaids and other current assets   3,557     3,276   Total current assets 66,657 71,517   Capital assets 8,905 8,971 Intangible assets 85,892 92,010 Goodwill 88,643 88,643   Deferred financing and other long-term assets   5,806     5,696   Total assets $ 255,903   $ 266,837       Liabilities and shareholders' deficit Current liabilities: Accounts payable and accrued liabilities $ 62,387 $ 67,290 Income taxes payable 771 723 Deferred revenue 13,980 15,707 Current portion of long-term debt 18,957 2,249   Current portion of obligations under capital leases   799     767   Total current liabilities 96,894 86,736   Deferred revenue 2,248 2,365 Deferred income taxes 19,520 20,754 Income taxes payable 12,911 11,693 Accrued pension benefit obligation 1,120 1,116 Obligations under capital leases 1,948 2,114   Long-term debt   138,960     156,359   Total liabilities   273,601     281,137     Shareholders' deficit Share capital 40,929 40,652 Additional paid-in capital 6,838 5,926 Accumulated other comprehensive loss (4,326 ) (721 )   Deficit   (61,139 )   (60,157 ) Total shareholders' deficit   (17,698 )   (14,300 )             Total liabilities and shareholders' deficit $ 255,903   $ 266,837   Consolidated Condensed Statement of Cash Flows             Three Months ended February 29, February 28,   2008     2007     Cash flow from operating activities Net loss $ (30 ) $ (11,876 ) Depreciation and amortization 1,162 702 Amortization of deferred financing fees 270 265 Amortization of intangible assets 6,414 5,757 Stock-based compensation 1,138 1,008 Provision for bad debts 104 16 Deferred income taxes (1,234 ) (1,035 ) Loss on disposal of fixed assets 42 - Acquired in-process research and development - 7,831 Unrealized loss on forward exchange contracts - 35 Loss (gain) on interest rate swap recorded at fair value 755 (191 ) Gain on sale of investment (822 ) -   Change in operating assets and liabilities   (1,392 )   15,928   Cash flow provided by operating activities   6,407     18,440     Cash flow from financing activities Restricted cash 56 - Proceeds from operating line of credit - 23,000 Proceeds from long-term debt - 70,000 Repayments of long-term debt (691 ) (681 ) Repayments of capital lease obligations (134 ) - Proceeds from exercise of stock options 51 1,302   Financing fees incurred   -     (1,672 ) Cash flow provided by (used in) financing activities   (718 )   91,949     Cash flow from investing activities Purchase of InterVideo Inc, net of cash acquired - (120,368 )   Purchase of long lived assets   (1,434 )   (110 ) Cash flow used in investing activities   (1,434 )   (120,478 )   Effect of exchange rate changes on cash and cash equivalents (35 ) (35 )   Increase (decrease) in cash and cash equivalents 4,220 (10,124 ) Cash and cash equivalents, beginning of period   24,615     51,030   Cash and cash equivalents, end of period $ 28,835   $ 40,906   Non-GAAP Results (In thousands, except per share data)             Three Months ended February 29, February 28,   2008     2007     Non-GAAP Adjusted Net Income Calculation: Net loss $ (30 ) $ (11,876 ) Amortization of intangible assets 6,414 5,757 Deferred income taxes (1,234 ) (1,035 ) Stock-based compensation 1,138 1,008 Restructuring 178 - InterVideo integration expense - 785 Acquired in-process research and development - 7,831 Amortization of deferred financing fees   270     265   Non-GAAP Adjusted Net Income $ 6,736   $ 2,735   Percentage of revenue 10.3 % 5.2 %   Pro-forma diluted non-GAAP adjusted net income per share $ 0.26 $ 0.11   Shares used in computing proforma diluted non-GAAP adjusted net income per share 26,045 25,402   Non-GAAP Adjusted EBITDA Calculation: Cash flow provided by operating activities $ 6,407 $ 18,440 Change in operating assets and liabilities 1,392 (15,928 ) Interest expense, net 4,288 3,921 Income tax expense (recovery) (92 ) 355 Deferred income taxes 1,234 1,035 Provision for bad debts (104 ) (16 ) Unrealized loss on forward exchange contracts - (35 ) Gain (loss) on interest rate swap (755 ) 191 Loss on disposal of fixed assets (42 ) - Gain on sale of investment 822 - InterVideo integration expense - 785 Restructuring   178     -   Non-GAAP Adjusted EBITDA $ 13,328   $ 8,748   Percentage of revenue 20.3 % 16.6 % Other Supplemental Information (In thousands)             Three Months ended February 29, February 28,   2008     2007     Revenue by Product Segment Graphics and Productivity $ 36,947 $ 34,064 Digital Media   28,597     18,570   Total $ 65,544   $ 52,634     As percentage of revenues Graphics and Productivity 56.4 % 64.7 % Digital Media   43.6 %   35.3 % Total   100.0 %   100.0 %     Revenue by Geography Americas $ 31,691 $ 27,193 EMEA 20,219 17,658 APAC   13,634     7,783   Total $ 65,544   $ 52,634     As percentage of revenues Americas 48.4 % 51.7 % EMEA 30.8 % 33.5 % APAC   20.8 %   14.8 % Total   100.0 %   100.0 %     Allocation of Stock-Based Compensation Expense Cost of revenues - Product $ 10 $ 9 Cost of revenues - Maintenance and service 2 2 Sales and marketing 395 270 Research and development 207 195 General and administration   524     532   Total $ 1,138   $ 1,008