Corel Corporation Reports Third Quarter 2007 Financial Results



    OTTAWA, October 10 /CNW/ - 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 at
http://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 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

    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, 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.

    
    Corel Corporation
    Quarterly Financial results
    For the quarter ended Aug 31, 2007
    (in thousands, except per share data; unaudited)

    Consolidated Condensed Statement of Operations

                                   ------------------- -------------------
                                      Three Months         Nine Months
                                    ended August 31,    ended 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           Nine Months
                                 ended August 31,      ended August 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)

                                   ------------------- -------------------
                                      Three Months         Nine Months
                                    ended August 31,    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

                                       ----------------- -----------------
                                         Three Months       Nine Months
                                       ended August 31,  ended August 31,
                                         2007     2006     2007     2006
                                       ----------------- -----------------
    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
    ----------------------------------------------------------------------
    

    CRELF




For further information:

For further information: Corel Corporation Catherine Hughes,
613-728-0826 ext. 1659 (Press) catherine.hughes@corel.com or The Blueshirt
Group Investor Relations: Todd Friedman, 415-217-7722 todd@blueshirtgroup.com
Stacie Bosinoff, 415-217-7722 stacie@blueshirtgroup.com

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