EXHIBIT 99.1
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Not for Immediate Release
Corel Corporation Reports
Third Quarter 2007 Financial Results
Third Quarter 2007 Financial Results
OTTAWA, Canada — October 10, 2007 —Corel Corporation (NASDAQ:CREL; TSX:CRE) today reported financial results for its third quarter ended August 31, 2007. Revenues in the third quarter of fiscal 2007 were $60.4 million, an increase of 46 percent over revenues of $41.3 million in the third quarter fiscal 2006. GAAP net loss in the third quarter of fiscal 2007 was $6.8 million, or $(0.27) per share, compared to GAAP net income of $5.5 million, or $0.22 per share, in the third quarter of fiscal 2006. GAAP net loss for the third quarter of 2007 includes a non-cash, one-time $5.0 million tax expense relating to the establishment of a valuation allowance against deferred tax assets acquired through the acquisition of InterVideo Inc.
Non-GAAP adjusted net income for the third quarter fiscal 2007 was $8.1 million, or $0.31 per diluted share, compared to non-GAAP adjusted net income for the third quarter of fiscal 2006 of $9.2 million, or $0.36 per diluted share. Non-GAAP adjusted EBITDA in the third quarter of 2007 was $13.5 million, compared to $12.4 million in the third quarter of fiscal 2006.
“Corel delivered another solid financial quarter, driven by our ability to successfully identify, acquire and integrate complementary companies and products,” said David Dobson, CEO of Corel Corporation. “We were especially pleased with the performance of our Graphics and Productivity products where we experienced double digit year over year growth for CorelDraw Graphics Suite, WinZip, Painter, Designer and iGrafx. These results demonstrate the strong foundation that we derive from our diverse revenue mix across product categories, distribution channels and geographies.”
Revenues for the nine months ended August 31, 2007 were $178.0 million, an increase of 37 percent over revenues of $129.8 million for the nine months ended August 31, 2006. GAAP net loss for the nine months ended August 31, 2007 was $16.3 million, or $(0.66) per share, compared to a GAAP net loss of $115,000, or $(0.01) per share, for the nine months ended August 31, 2006.
Non-GAAP adjusted net income for the nine months ended August 31, 2007 was $20.7 million, or $0.80 per diluted share, compared to non-GAAP adjusted net income for the nine months
ended August 31, 2006 of $24.5 million, or $1.09 per diluted share. Non-GAAP adjusted EBITDA for the nine months ended August 31, 2007 was $37.4 million, compared to $40.5 million for the nine months ended August 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 information included in this press release.
Financial Guidance
Fourth Quarter Fiscal 2007 Guidance
Corel provided guidance for the fourth quarter ending November 30, 2007. The Company currently expects:
• | Revenue in the range of $66 million to $70 million. | |
• | GAAP net income in the range of $3.0 million to $5.0 million and non-GAAP adjusted net income in the range of $11.5 million to $13.5 million. | |
• | GAAP earnings per share in the range of $0.12 to $0.19 and non-GAAP earnings per share in the range of $0.43 to $0.52. |
Fiscal 2007 Guidance
Resulting guidance for the year ending November 30, 2007 is as follows:
• | Revenue in the range of $244 million to $248 million. | |
• | GAAP net loss of $(13.3) million to $(11.3) million and non-GAAP adjusted net income of $32 million to $34 million. | |
• | GAAP loss per share of $(0.51) to $(0.44) and non-GAAP earnings per share of $1.24 to $1.33. |
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 (888) 211-7311 or (913) 312-0946. A live webcast and replay of the call will also be available through Corel’s Investor Relations website athttp://investor.corel.com/events.cfm. An audio replay of the call will be available between 7:30 p.m. (ET) October 10, 2007 and midnight (ET) October 24, 2007 by calling (888) 203-1112 or (719) 457-0820, Passcode: 8465039. 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 May 31, 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 athttp://www.sec.gov.http://www.sec.gov./ or on the CSA’s website athttp://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 athttp://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
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®, Corel® Painter™, Corel DESIGNER®, Corel® WordPerfect® Office, WinZip® and iGrafx®. In 2006, Corel acquired InterVideo, makers of WinDVD®, 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.
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© 2007 Corel Corporation. All rights reserved. Corel, CorelDRAW, Paint Shop Pro, Painter, Corel DESIGNER, WordPerfect, WinZip, iGrafx, WinDVD, InterVideo, Ulead 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 mentioned are used for identification purposes only and remain the exclusive property of their respective owners.
CRELF
Press Contact:
Catherine Hughes
613-728-0826 x1659
catherine.hughes@corel.com
Investor Relations Contact:
The Blueshirt Group
415-217-7722
Todd Friedman
todd@blueshirtgroup.com
Stacie Bosinoff
stacie@blueshirtgroup.com
Corel Corporation
Quarterly Financial results
For the quarter ended Aug 31, 2007
(in thousands, except per share data; unaudited)
Quarterly Financial results
For the quarter ended Aug 31, 2007
(in thousands, except per share data; unaudited)
Consolidated Condensed Statement of Operations
Three Months ended | Nine Months ended | |||||||||||||||
August 31, | August 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenues — Product | $ | 55,018 | $ | 36,362 | $ | 161,875 | $ | 115,011 | ||||||||
Revenues — Maintenance and services | 5,352 | 4,892 | 16,161 | 14,740 | ||||||||||||
Total revenues | 60,370 | 41,254 | 178,036 | 129,751 | ||||||||||||
Cost of revenues — Product | 12,143 | 5,338 | 34,640 | 15,392 | ||||||||||||
Cost of revenues — Maintenance and services | 244 | 287 | 663 | 877 | ||||||||||||
Amortization of intangible assets | 6,925 | 2,712 | 19,055 | 11,987 | ||||||||||||
Total cost of revenues | 19,312 | 8,337 | 54,358 | 28,256 | ||||||||||||
Gross margin | 41,058 | 32,917 | 123,678 | 101,495 | ||||||||||||
Operating expenses | ||||||||||||||||
Sales and marketing | 17,231 | 11,810 | 51,827 | 40,337 | ||||||||||||
Research and development | 11,282 | 6,379 | 33,323 | 19,200 | ||||||||||||
General and administration | 8,803 | 5,833 | 27,085 | 17,421 | ||||||||||||
Acquired in-process research and development | — | — | 7,831 | — | ||||||||||||
InterVideo integration expense | 2,220 | — | 3,865 | — | ||||||||||||
Restructuring | — | — | — | 811 | ||||||||||||
Total operating expenses | 39,536 | 24,022 | 123,931 | 77,769 | ||||||||||||
Income (loss) from operations | 1,522 | 8,895 | (253 | ) | 23,726 | |||||||||||
Other expenses (income) | ||||||||||||||||
Loss on debt retirement | — | 17 | — | 8,292 | ||||||||||||
Interest expense, net | 4,195 | 2,334 | 11,834 | 9,404 | ||||||||||||
Amortization of deferred financing fees | 270 | 188 | 804 | 989 | ||||||||||||
Other non-operating (income) expense | (497 | ) | 377 | (650 | ) | (271 | ) | |||||||||
Income (loss) before income taxes | (2,446 | ) | 5,979 | (12,241 | ) | 5,312 | ||||||||||
Income tax recovery (provision) | (4,314 | ) | (485 | ) | (4,082 | ) | (5,427 | ) | ||||||||
Net income (loss) | $ | (6,760 | ) | $ | 5,494 | $ | (16,323 | ) | $ | (115 | ) | |||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | (0.27 | ) | $ | 0.22 | $ | (0.66 | ) | $ | (0.01 | ) | |||||
Fully diluted | $ | (0.27 | ) | $ | 0.22 | $ | (0.66 | ) | $ | (0.01 | ) | |||||
Weighted average number of shares: | ||||||||||||||||
Basic | 25,041 | 24,494 | 24,828 | 21,708 | ||||||||||||
Fully diluted | 25,041 | 25,348 | 24,828 | 21,708 |
Consolidated Condensed Balance Sheet
As of August 31, | November 30, | |||||||
2007 | 2006 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 21,257 | $ | 51,030 | ||||
Restricted cash | 217 | 717 | ||||||
Accounts receivable | ||||||||
Trade, net | 24,309 | 18,150 | ||||||
Other | 1,431 | 808 | ||||||
Inventory | 856 | 914 | ||||||
Income taxes recoverable | 1,024 | — | ||||||
Prepaids and other current assets | 4,419 | 2,300 | ||||||
Total current assets | 53,513 | 73,919 | ||||||
Investments | 218 | 203 | ||||||
Capital assets | 9,156 | 3,651 | ||||||
Intangible assets | 98,041 | 37,831 | ||||||
Goodwill | 83,419 | 9,850 | ||||||
Deferred financing charges and other long-term assets | 4,852 | 5,232 | ||||||
Total assets | $ | 249,199 | $ | 130,686 | ||||
Liabilities and shareholders’ deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 49,699 | $ | 28,220 | ||||
Due to related parties | — | 167 | ||||||
Operating line of credit | 7,000 | — | ||||||
Income taxes payable | — | 235 | ||||||
Deferred revenue | 13,333 | 12,719 | ||||||
Current portion of long-term debt | 2,164 | 1,426 | ||||||
Current portion of obligation under capital leases | 655 | — | ||||||
Total current liabilities | 72,851 | 42,767 | ||||||
Deferred revenue | 2,285 | 2,015 | ||||||
Deferred income tax liability | 22,189 | — | ||||||
Obligation under capital leases | 2,209 | — | ||||||
Income taxes payable | 12,528 | 8,488 | ||||||
Long-term debt | 156,808 | 89,223 | ||||||
Total liabilities | 268,870 | 142,493 | ||||||
Shareholders’ deficit | ||||||||
Share capital | 37,526 | 30,722 | ||||||
Additional paid-in capital | 6,211 | 4,612 | ||||||
Accumulated other comprehensive loss | 10 | (46 | ) | |||||
Deficit | (63,418 | ) | (47,095 | ) | ||||
Total shareholders’ deficit | (19,671 | ) | (11,807 | ) | ||||
Total liabilities and shareholders’ deficit | $ | 249,199 | $ | 130,686 | ||||
Consolidated Condensed Statement of Cash Flows
Three Months ended August 31, | Nine Months ended Aug 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Cash flow from operating activities | ||||||||||||||||
Net income (loss) | $ | (6,760 | ) | $ | 5,494 | $ | (16,323 | ) | $ | (115 | ) | |||||
Depreciation and amortization | 544 | 336 | 2,215 | 1,112 | ||||||||||||
Amortization of deferred financing fees | 270 | 188 | 804 | 989 | ||||||||||||
Amortization of intangible assets | 6,925 | 2,712 | 19,055 | 11,987 | ||||||||||||
Stock-based compensation | 1,770 | 805 | 4,068 | 2,451 | ||||||||||||
Provision for bad debts | 115 | (24 | ) | 180 | 150 | |||||||||||
Deferred income taxes | 3,667 | — | 1,352 | 636 | ||||||||||||
Acquired in-process research and development | — | — | 7,831 | — | ||||||||||||
Unrealized loss on forward exchange contracts | (26 | ) | (43 | ) | 9 | 178 | ||||||||||
Loss on early retirement of debt | — | 17 | — | 8,292 | ||||||||||||
Loss on disposal of fixed assets | 48 | — | 102 | — | ||||||||||||
(Gain)/loss on interest rate swap recorded at fair value | 337 | — | (245 | ) | — | |||||||||||
Change in operating assets and liabilities | (6,387 | ) | (3,453 | ) | (3,321 | ) | (3,981 | ) | ||||||||
Cash flow provided by (used in) operating activities | 503 | 6,032 | 15,727 | 21,699 | ||||||||||||
Cash flow from financing activities | ||||||||||||||||
Restricted cash | 500 | (1 | ) | 500 | (1 | ) | ||||||||||
Proceeds from operating line of credit | — | — | 48,000 | — | ||||||||||||
Repayments on operating line of credit | (6,000 | ) | — | (41,000 | ) | — | ||||||||||
Proceeds from long-term debt | — | — | 70,000 | 90,000 | ||||||||||||
Repayments of long-term debt | (399 | ) | (225 | ) | (1,479 | ) | (148,954 | ) | ||||||||
Repayments of capital lease obligations | (128 | ) | — | (128 | ) | — | ||||||||||
Financing fees incurred | (4 | ) | (70 | ) | (1,681 | ) | (7,708 | ) | ||||||||
Net proceeds from public offering | — | (3,221 | ) | — | 69,317 | |||||||||||
Proceeds from exercise of stock options | 1,298 | 3 | 3,987 | 4 | ||||||||||||
Dividends paid | — | — | — | (7,500 | ) | |||||||||||
Other financing activities | (272 | ) | (340 | ) | (221 | ) | (1,438 | ) | ||||||||
Cash flow provided by (used in) financing activities | (5,005 | ) | (3,854 | ) | 77,978 | (6,280 | ) | |||||||||
Cash flow from investing activities | ||||||||||||||||
Purchase of InterVideo Inc, net of cash acquired | (203 | ) | �� | (121,357 | ) | — | ||||||||||
Purchase of long lived assets, net of proceeds | (1,441 | ) | (616 | ) | (2,159 | ) | (1,471 | ) | ||||||||
Cash flow used in investing activities | (1,644 | ) | (616 | ) | (123,516 | ) | (1,471 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (7 | ) | (29 | ) | 38 | (140 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | (6,153 | ) | 1,533 | (29,773 | ) | 13,808 | ||||||||||
Cash and cash equivalents, beginning of period | 27,410 | 33,021 | 51,030 | 20,746 | ||||||||||||
Cash and cash equivalents, end of period | $ | 21,257 | $ | 34,554 | $ | 21,257 | $ | 34,554 | ||||||||
Non-GAAP Results
(In thousands, except per share data)
(In thousands, except per share data)
Three Months ended August 31, | Nine Months ended August 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Non-GAAP Adjusted Net Income Calculation: | ||||||||||||||||
Net income (loss) | $ | (6,760 | ) | $ | 5,494 | $ | (16,323 | ) | $ | (115 | ) | |||||
Amortization of intangible assets | 6,925 | 2,712 | 19,055 | 11,987 | ||||||||||||
Tax benefit on amortization of intangible assets | (1,340 | ) | (3,655 | ) | ||||||||||||
Tax expense on write-off of deferred tax asset | 5,007 | 5,007 | ||||||||||||||
Stock-based compensation | 1,770 | 805 | 4,068 | 2,451 | ||||||||||||
Restructuring | — | — | — | 928 | ||||||||||||
InterVideo integration expense | 2,220 | — | 3,865 | — | ||||||||||||
Acquired in-process research and development | — | — | 7,831 | — | ||||||||||||
Loss on debt retirement | — | 17 | — | 8,292 | ||||||||||||
Amortization of deferred financing fees | 270 | 188 | 804 | 989 | ||||||||||||
Non-GAAP Adjusted Net Income | $ | 8,092 | $ | 9,216 | $ | 20,652 | $ | 24,532 | ||||||||
Percentage of revenue | 13.4 | % | 22.3 | % | 11.6 | % | 18.9 | % | ||||||||
Pro-forma diluted non-GAAP adjusted net income per share | $ | 0.31 | $ | 0.36 | $ | 0.80 | $ | 1.09 | ||||||||
Shares used in computing proforma diluted non-GAAP adjusted net income per share | 25,888 | 25,348 | 25,716 | 22,492 | ||||||||||||
Non-GAAP Adjusted EBITDA Calculation: | ||||||||||||||||
Cash flow provided by (used in) operating activities | $ | 503 | $ | 6,032 | $ | 15,727 | $ | 21,699 | ||||||||
Change in operating assets and liabilities | 6,387 | 3,453 | 3,321 | 3,981 | ||||||||||||
Interest expense, net | 4,195 | 2,334 | 11,834 | 9,404 | ||||||||||||
Income tax provision | 4,314 | 485 | 4,082 | 5,427 | ||||||||||||
Deferred income taxes | (3,667 | ) | — | (1,352 | ) | (636 | ) | |||||||||
Provision for bad debts | (115 | ) | 24 | (180 | ) | (150 | ) | |||||||||
Unrealized losses on forward exchange contracts | 26 | 43 | (9 | ) | (178 | ) | ||||||||||
(Gain)/loss on interest rate swap recorded at fair value | (337 | ) | — | 245 | — | |||||||||||
Loss on disposal of fixed assets | (48 | ) | — | (102 | ) | — | ||||||||||
InterVideo integration expense | 2,220 | — | 3,865 | — | ||||||||||||
Restructuring | — | — | — | 928 | ||||||||||||
Non-GAAP Adjusted EBITDA | $ | 13,478 | $ | 12,371 | $ | 37,431 | $ | 40,475 | ||||||||
Percentage of revenue | 22.3 | % | 30.0 | % | 21.0 | % | 31.2 | % |
Other Supplemental Information
Revenue by Product Segment | ||||||||||||||||
Graphics and Productivity | $ | 33,683 | $ | 32,619 | $ | 102,265 | $ | 103,330 | ||||||||
Digital Media | 26,687 | 8,635 | 75,771 | 26,421 | ||||||||||||
Total | $ | 60,370 | $ | 41,254 | $ | 178,036 | $ | 129,751 | ||||||||
As percentage of revenues | ||||||||||||||||
Graphics and Productivity | 55.8 | % | 79.1 | % | 57.4 | % | 79.6 | % | ||||||||
Digital Media | 44.2 | % | 20.9 | % | 42.6 | % | 20.4 | % | ||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Revenue by Geography | ||||||||||||||||
Americas | $ | 31,426 | $ | 26,559 | $ | 91,634 | $ | 79,141 | ||||||||
Europe, Middle East, Africa | 14,566 | 10,887 | 49,332 | 40,336 | ||||||||||||
Asia-Pacific | 14,378 | 3,808 | 37,070 | 10,274 | ||||||||||||
Total | $ | 60,370 | $ | 41,254 | $ | 178,036 | $ | 129,751 | ||||||||
As percentage of revenues | ||||||||||||||||
Americas | 52.1 | % | 64.4 | % | 51.5 | % | 61.0 | % | ||||||||
Europe, Middle East, Africa | 24.1 | % | 26.4 | % | 27.7 | % | 31.1 | % | ||||||||
Asia-Pacific | 23.8 | % | 9.2 | % | 20.8 | % | 7.9 | % | ||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Allocation of Stock-Based Compensation Expense | ||||||||||||||||
Cost of revenues — Product | $ | 15 | $ | 4 | $ | 33 | $ | 19 | ||||||||
Cost of revenues — Maintenance and service | 3 | 2 | 7 | 6 | ||||||||||||
Sales and marketing | 468 | 231 | 1,049 | 543 | ||||||||||||
Research and development | 369 | 101 | 857 | 217 | ||||||||||||
General and administration | 915 | 467 | 2,122 | 1,666 | ||||||||||||
Total | $ | 1,770 | $ | 805 | $ | 4,068 | $ | 2,451 | ||||||||