Corel Corporation (NASDAQ:CREL) (TSX:CRE) today reported financial results for its third quarter ended August 31, 2009. Revenues in the third quarter of fiscal 2009 were $47.4 million, compared to $66.2 million in the third quarter of fiscal 2008. GAAP net income in the third quarter of fiscal 2009 was $0.5 million or $0.02 per basic and diluted share, compared to GAAP net income of $1.6 million or $0.06 per basic and diluted share, in the third quarter of fiscal 2008.

Non-GAAP adjusted net income for the third quarter of fiscal 2009 was $7.2 million, or $0.27 per diluted share, compared to non-GAAP adjusted net income for the third quarter of fiscal 2008 of $10.2 million, or $0.39 per diluted share. Non-GAAP adjusted EBITDA in the third quarter of fiscal 2009 was $9.6 million, compared to $15.8 million in the third quarter of fiscal 2008.

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.

“In the third quarter, Corel demonstrated not only strong financial management through a difficult period, but also our commitment to innovation,” said Kris Hagerman, Corel CEO. “Our release of Corel Digital Studio taps into the dramatic growth of digital photo capture and video creation, and makes it much easier for consumers to make the most of their digital memories. By delivering a better user experience and superior value, we believe we will be well positioned as the economy improves and consumer confidence returns.”

Corel will host a conference call to discuss its financial results at 4:30 PM Eastern Time today. To access the conference call, please dial (877) 627-6580 or (719) 325-4900 approximately 5 minutes prior to the 4:30 PM 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 beginning at 7:30 PM ET on October 1, 2009 from Corel’s Investor Relations website or by calling (888) 203-1112 or (719) 457-0820, Passcode: 6894738.

Financial Statements Governance Practice:

The Audit Committee of Corel’s Board of Directors reviewed the earnings portion of this press release as well as the related financial statements and MD&A, and recommended they be approved by the Board of Directors. Following review by the full Board, the financial statements, MD&A and the earnings portion of this press release were approved.

Forward Looking Statements:

This news release includes forward-looking statements which are based on estimates and assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances including but not limited to general economic conditions, product pricing levels and competitive intensity, and new product introductions.

Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause 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 the recent disruption in the overall economy and financial and credit markets, which may adversely impact our operations and financial results as well as our ability to obtain financing required to grow our business and make acquisitions. We may experience fluctuations in our operating results depending on the timing and success of product releases. 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, establish relationships with new original equipment manufacturer customers, or increase penetration of our installed base to achieve revenue growth. The long-term trend in our business reflects growth in revenues from acquisitions, which give rise to their own risks and challenges, rather than from our existing products, and that recent growth may not be representative of future growth. We face 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, 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. Any resulting litigation costs, settlement costs or royalty requirements could affect our profitability.

These and other risks, uncertainties and other important factors are described in Corel’s Annual Report dated February 9, 2009, 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. These factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any intention 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, except as required by law.

Financial Presentation and Use of Non-GAAP Measures:

Our financial statements are 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, to assist in evaluation of our ongoing operations and liquidity and to determine appropriate levels of indebtedness. We believe each of these non-GAAP financial measures is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. 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. These non-GAAP financial measures should not be considered in isolation, and should not be viewed as alternatives to measures of financial performance or changes in cash flows calculated in accordance with GAAP. We believe it is useful for ourselves and investors to review, as applicable, both GAAP information, which includes interest, income taxes, depreciation, amortization, provision for bad debts, effects of disposal or fixed assets and investments, restructuring, integration and reorganization costs, and certain other gains, losses and expenses, and the non-GAAP measures, which exclude certain of these amounts, in order to assess the performance of our continuing operations and for planning and forecasting in future periods. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to the closest GAAP measures as set out in the notes to the financial statements attached to this news release.

About Corel

Corel is one of the world’s top software companies with more than 100 million active users in over 75 countries. We develop software that helps people express their ideas and share their stories in more exciting, creative and persuasive ways. Through the years, we’ve built a reputation for delivering innovative, trusted products that are easy to learn and use, helping people achieve new levels of productivity. The industry has responded with hundreds of awards for software innovation, design and value.

Our award-winning product portfolio includes some of the world’s most widely recognized and popular software brands, including CorelDRAW® Graphics Suite, Corel® Painter™, Corel DESIGNER® Technical Suite, Corel® Paint Shop Pro® Photo, Corel® VideoStudio®, Corel® WinDVD®, Corel® WordPerfect® Office, WinZip®, and the recently released Corel® Digital Studio™ 2010. Our global headquarters are in Ottawa, Canada, with major offices in the United States, United Kingdom, Germany, China, Taiwan and Japan.

© 2009 Corel Corporation. All rights reserved. Corel, CorelDRAW, Paint Shop Pro, Painter, Corel DESIGNER, VideoStudio, WordPerfect, WinDVD, WinZip, Digital Studio, iGrafx 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 August 31, 2009 (in thousands, except per share data; unaudited)                           Three Months ended Nine Months ended August 31, August 31 August 31, August 31 Consolidated Condensed Statement of Operations 2009         2008   2009         2008     Revenues - Product $ 41,712 $ 59,725 $ 136,067 $ 179,336 Revenues - Maintenance and services     5,669           6,503     17,896           19,480   Total revenues     47,381           66,228     153,963           198,816     Cost of revenues - Product 12,688 15,218 42,585 44,453 Cost of revenues - Maintenance and services 164 113 374 412 Amortization of intangible assets     6,152           6,418     18,471           19,250   Total cost of revenues 19,004 21,749 61,430 64,115                               Gross margin     28,377           44,479     92,533           134,701     Operating expenses Sales and marketing 13,738 17,941 43,780 58,373 Research and development 7,940 10,610 26,336 34,417 General and administration 5,120 8,378 17,544 25,829   Restructuring     (28 )         293     1,585           918   Total operating expenses     26,770           37,222     89,245           119,537   Income from operations 1,607 7,257 3,288 15,164   Other expenses (income) Interest expense - net 2,761 3,540 8,784 10,761 Amortization of deferred financing fees 271 270 813 810 Expenses associated with evaluation of strategic alternatives - 992 - 1,697   Other non-operating (income) expense     165           1,034     (733 )         (328 ) Income (loss) before income taxes (1,590 ) 1,421 (5,576 ) 2,224 Income tax provision (recovery)     (2,119 )         (177 )   (444 )         (274 ) Net income (loss)   $ 529         $ 1,598   $ (5,132 )       $ 2,498     Net loss per share: Basic $ 0.02 $ 0.06 $ (0.20 ) $ 0.10 Fully diluted $ 0.02 $ 0.06 $ (0.20 ) $ 0.10 Weighted average number of shares: Basic 25,899 25,704 25,873 25,570 Fully diluted 26,138 26,248 25,873 26,192     Consolidated Condensed Balance Sheet             August 31, November 30, 2009         2008   Assets Current assets: Cash and cash equivalents $ 18,902 $ 50,260 Restricted cash 9 159 Accounts receivable Trade, net of allowance for doubtful accounts 22,587 33,241 Other 1,950 2,932 Inventory 1,149 1,562 Income taxes recoverable 155 785 Deferred tax assets - 3,138   Prepaids and other current assets     3,054           2,456   Total current assets 47,806 94,533   Capital assets 8,545 10,549 Intangible assets 48,237 67,029 Goodwill 80,993 82,343   Deferred financing and other long-term assets   4,136           4,942   Total assets   $ 189,717         $ 259,396       Liabilities and shareholders' deficit Current liabilities: Accounts payable and accrued liabilities $ 40,774 $ 57,746 Due to related parties 335 341 Income taxes payable 1,568 1,226 Deferred revenue 11,137 15,190 Current portion of long-term debt - 19,095 Current portion of interest rate swaps 3,778 3,096   Current portion of obligations under capital leases   739           621   Total current liabilities 58,331 97,315   Deferred revenue 1,841 2,404 Income taxes payable 10,987 12,960 Deferred income taxes 7,687 13,059 Long-term debt 117,768 137,264 Accrued pension benefit obligation 220 261 Interest rate swaps 2,410 3,534   Obligations under capital leases     517           962   Total liabilities     199,761           267,759     Shareholders' deficit Share capital 44,800 43,992 Additional paid-in capital 11,800 9,198 Accumulated other comprehensive loss (4,110 ) (4,151 )   Deficit     (62,534 )         (57,402 ) Total shareholders' deficit     (10,044 )         (8,363 )                     Total liabilities and shareholders' deficit   $ 189,717         $ 259,396       Consolidated Condensed Statement of Cash Flows                       Three Months ended Nine Months ended August 31, August 31 August 31, August 31 2009         2008   2009         2008     Cash flows from operating activities Net income (loss) $ 529 $ 1,598 $ (5,132 ) $ 2,498 Depreciation and amortization 1,075 1,022 3,374 3,417 Amortization of deferred financing fees 271 270 813 810 Amortization of intangible assets 6,152 6,418 18,471 19,250 Stock-based compensation 1,001 1,839 3,361 4,954 Provision for (recovery of) bad debts (28 ) 146 (57 ) 379 Change in tax uncertainties (2,245 ) (62 ) (1,973 ) 494 Deferred income taxes (744 ) (1,233 ) (884 ) (3,700 ) Loss on disposal of fixed assets - 19 18 67 Loss (gain) on interest rate swap recorded at fair value (200 ) (193 ) (419 ) 50 Unrealized gain on forward foreign exchange contracts - - (45 ) - Gain on sale of investment - - - (822 ) Defined benefit pension plan costs (2 ) - 20 -   Change in operating assets and liabilities     1,496           (3,605 )   (9,491 )         (7,861 ) Cash flows provided by (used in) operating activities   7,305           6,219     8,056           19,536     Cash flows from financing activities Reduction in restricted cash 150 2 150 58 Repayments of long-term debt (20,346 ) (755 ) (38,591 ) (1,850 ) Repayments of capital lease obligations (177 ) (318 ) (543 ) (657 ) Proceeds from exercise of stock options 14 231 49 485   Other financing activities     (27 )         -     (77 )         -   Cash flows provided by (used in) financing activities   (20,386 )         (840 )   (39,012 )         (1,964 )   Cash flows from investing activities   Purchase of long-lived assets     (14 )         (1,657 )   (1,067 )         (4,956 ) Cash flows used in investing activities     (14 )         (1,657 )   (1,067 )         (4,956 )   Effect of exchange rate changes on cash and cash equivalents (130 ) - 665 (94 )   Increase (decrease) in cash and cash equivalents (13,225 ) 3,722 (31,358 ) 12,522 Cash and cash equivalents, beginning of period   32,127           33,415     50,260           24,615   Cash and cash equivalents, end of period   $ 18,902         $ 37,137   $ 18,902         $ 37,137         Non-GAAP Results (In thousands, except per share data)                     Three Months ended Nine Months ended August 31, August 31 August 31, August 31 2009         2008   2009         2008     Non-GAAP Adjusted Net Income Calculation: Net income (loss) $ 529 $ 1,598 $ (5,132 ) $ 2,498 Amortization of intangible assets 6,152 6,418 18,471 19,250 Tax benefit on amortization of intangible assets (744 ) (1,233 ) (884 ) (3,700 ) Stock-based compensation 1,001 1,839 3,361 4,954 Restructuring (28 ) 293 1,585 918 Expenses associated with evaluation of strategic alternatives - 992 - 1,697 Amortization of deferred financing fees     271           270     813           810   Non-GAAP Adjusted Net Income   $ 7,181         $ 10,177   $ 18,214         $ 26,427   Percentage of revenue 15.2 % 15.4 % 11.8 % 13.3 %   Diluted non-GAAP adjusted net income per share $ 0.27 $ 0.39 $ 0.70 $ 1.01   Shares used in computing diluted non-GAAP adjusted net income per share 26,138 26,248 26,123 26,192   Non-GAAP Adjusted EBITDA Calculation: Cash flows provided by (used in) operating activities $ 7,305 $ 6,219 $ 8,056 $ 19,536 Change in operating assets and liabilities (1,496 ) 3,605 9,491 7,861 Interest expense, net 2,761 3,540 8,784 10,761 Income tax expense (recovery) (2,119 ) (177 ) (444 ) (274 ) Change in tax uncertainties 2,245 62 1,973 (494 ) Deferred income taxes 744 1,233 884 3,700 Recovery (provision) for bad debts 28 (146 ) 57 (379 ) Defined benefit pension plan costs 2 - (20 ) - Unrealized gain on forward foreign exchange contracts - - 45 - Gain on sale of investment - - - 822 Gain (loss) on interest rate swap recorded at fair value 200 193 419 (50 ) Loss on disposal of fixed assets - (19 ) (18 ) (67 ) Expenses associated with evaluation of strategic alternatives - 992 - 1,697 Restructuring     (28 )         293     1,585           918   Non-GAAP Adjusted EBITDA   $ 9,642         $ 15,795   $ 30,812         $ 44,031   Percentage of revenue 20.3 % 23.8 % 20.0 % 22.1 %     Other Supplemental Information (In thousands)                     Three Months ended Nine Months ended August 31, August 31 August 31, August 31 2009         2008   2009         2008     Revenue by Product Segment Graphics and Productivity $ 26,998 $ 37,913 $ 84,233 $ 113,357 Digital Media     20,383           28,315     69,730           85,459   Total   $ 47,381         $ 66,228   $ 153,963         $ 198,816     As percentage of revenues Graphics and Productivity 57.0 % 57.2 % 54.7 % 57.0 % Digital Media     43.0 %         42.8 %   45.3 %         43.0 % Total     100.0 %         100.0 %   100.0 %         100.0 %     Revenue by Geography Americas $ 24,915 $ 33,000 $ 76,081 $ 96,690 EMEA 11,314 18,151 37,683 58,728 APAC     11,152           15,077     40,199           43,398   Total   $ 47,381         $ 66,228   $ 153,963         $ 198,816     As percentage of revenues Americas 52.6 % 49.8 % 49.4 % 48.6 % EMEA 23.9 % 27.4 % 24.5 % 29.5 % APAC     23.5 %         22.8 %   26.1 %         21.8 % Total     100.0 %         100.0 %   100.0 %         100.0 %     Allocation of Stock-Based Compensation Expense Cost of revenues - Product $ 3 $ 4 $ 10 $ 19 Cost of revenues - Maintenance and services 2 2 6 6 Sales and marketing 302 459 1,249 1,358 Research and development 160 232 503 767 General and administration     534           1,142     1,593           2,804   Total   $ 1,001         $ 1,839   $ 3,361         $ 4,954  
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