OTTAWA- March 27, 2003--Corel today announced results for its first quarter of fiscal 2003, ended February 28, 2003. All figures are reported in US currency.
For the first quarter of fiscal 2003, Corel reported total revenue of $28.3 million and a net loss of $574,000, or $(0.01) per share. This compares with revenue of $33.5 million and a net loss of $27.8 million, or $(0.30) per share, for the fourth quarter of fiscal 2002, which included a charge to net income of $5.9 million for severance and occupancy costs and $17.2 million for the write-down of non-tangible assets of technology and goodwill. Corel's first quarter 2003 results also compare with revenue of $31.2 million and a net loss of $3.1 million, or $(0.04) per share, for the same period last year.
Cash and cash equivalents, restricted cash and short-term investments at the end of the first quarter of fiscal 2003 stood at $73.0 million, compared with $77.3 million at the end of fiscal 2002. Factors contributing to the decrease include a negative EBITDA of $580,000 and a substantial acceleration of payments which will be offset by a corresponding reduction in cash requirements in the second quarter of fiscal 2003.
Derek Burney, President and CEO of Corel Corporation, commented: "Our first quarter results show the remarkable progress we've made in reducing our cost structure and improving our internal operations. Today, our workforce is 20% leaner than it was a year ago, enabling us to deliver new solutions to market with increased speed and efficiency. Revenue from our solution categories are on track with management expectations both the core business, led by our flagship CorelDRAW and WordPerfect Office suites, and the new business in which we are investing for growth, which includes our XML solutions. Q1 was a relatively light quarter in terms of revenue, as the market was anticipating the upcoming release of the new version of our WordPerfect Office suite."
Mr. Burney added: "We remain focused on executing our strategy by delivering innovative software solutions that enable customers to create, exchange and instantly interact with visual content that is always relevant, accurate and available. Our goal is to be profitable in 2003 as we continue to invest in new technologies and build partnerships to serve enterprise customers, laying the foundation for longer-term recurring revenue streams."
Performance By Solution Category Graphics Solutions
Corel's graphics solutions revenue decreased 7% on a year-to-year basis, from $16.5 million in the first quarter of fiscal 2002 to $15.3 million in the first quarter of fiscal 2003, mainly due to a decline in sales from Corel's niche graphics products for which marketing support had been significantly curtailed. These products include KnockOut and KPT. On a year-to-year basis, revenue from CorelDRAW - the Company's flagship graphics solution - increased by 2%, from $11.2 million to $11.4 million. On a sequential basis, revenue from CorelDRAW declined by 16%, from $13.6 million in the fourth quarter of fiscal 2002. Corel introduced a new version of its CorelDRAW graphics suite in August of 2002.
Office Productivity Solutions
Revenue from Corel's office productivity solutions declined 25% on a year-to-year basis, from $11.9 million in the first quarter of fiscal 2002 to $9.0 million in the first quarter of fiscal 2003. On a sequential basis, sales of Corel's office productivity solutions decreased by 35%, from $13.8 million in the fourth quarter of fiscal 2002. This was consistent with management expectations as the current version of the Company's WordPerfect Office suite advanced towards the end of its version life cycle and the market anticipates the release of WordPerfect Office 11 late next month.
Process Management Solutions
Corel's process management solutions are targeted as an investment area and growth opportunity for the Company. Revenue from Corel's process management solutions grew 4% on a year-to-year basis,increasing to $2.3 million in the first quarter of fiscal 2003 from $2.2 million in the first quarter of fiscal 2002. Sequentially, sales of the process management solutions increased from $1.6 million in the fourth quarter of fiscal 2002, growing by 38%. The Company released new versions of the complete iGrafx process management product line during the third and fourth quarters of fiscal 2002.
Revenue from Corel's XML solutions, another area targeted for investment and growth, decreased sequentially, to $1.1 million in the first quarter of fiscal 2003 from $1.4 million in the fourth quarter of fiscal 2002. Corel released a new version of XMetaL, an XML authoring solution, during the first quarter of fiscal 2003. XMetaL was acquired by Corel from SoftQuad, Software Ltd. in March 2002.
Performance by Region
Revenue generated by Corel in the North American market in the first quarter of fiscal 2003 decreased by 31% to $12.8 million compared with the fourth quarter of fiscal 2002, in part due to lowersales of Corel's WordPerfect Office solution as the market anticipates the new version. Total revenue in North America for the fourth quarter of 2002 was $18.6 million. On a year-to-year comparison, North American revenue decreased 18%, from $15.6 million in the first quarter of fiscal 2002.
First quarter fiscal 2003 revenue for Corel's Europe, Middle East and Africa (EMEA) operation decreased by 16% over the fourth quarter of fiscal 2002, to $9.6 million from $11.4 million. This is primarily the result of competitive pricing pressures and overall weak economic conditions in key European markets. On a year-to-year basis, EMEA revenue for the first quarter of fiscal 2003 declined 8% from $10.4 million in the first quarter of fiscal 2002.
Revenue from Corel's other international regions - Asia Pacific (APAC) and Latin America - remained relatively flat on a year-to-year basis. Revenue in these regions combined amounted to $3.4 million in the first quarter of fiscal 2003, up from $3.2 million in the first quarter of fiscal 2002 and $1.9 million in the fourth quarter of fiscal 2002.
Revenue from Corel's OEM arrangements during the first quarter of fiscal 2003 were $2.6 million, an increase of 59% over fourth quarter fiscal 2002 revenue and due in large part to an increase in royalty revenues received from Dell. Corel's OEM revenue for this quarter are up by 27% over the first quarter of fiscal 2002, when the Company achieved total OEM revenue of $2.0 million.
Sales, marketing, research and development (R&D), and general and administrative (G&A) expenses for the first quarter of fiscal 2003 were $26.2 million, down $16.1 million from the fourth quarter of fiscal 2002. Excluding the $5.9 million charge in the fourth quarter of 2002 for severance and occupancy costs related to streamlining activities, these expenses were down $10.2 million on a sequential basis. Compared with the first quarter of fiscal 2002, the Company's first quarter 2003 expenses for sales and marketing, R&D and G&A were down by $1.2 million, despite an increase in current operating costs attributable to the acquisition of SoftQuad in March 2002.
Gross margin, or gross profit as a percent of sales, increased to 87% in the first quarter of fiscal 2003 from 84.6% in the fourth quarter of fiscal 2002. Gross margin decreased from the first quarter of fiscal 2002, when it was 91%. Cost of sales for the first quarter of fiscal 2003 was $3.6 million compared with $2.9 million for the same period in 2002. The increase in cost of sales is attributable to provisioning of older material, destruction-related costs and low volume runs. Significant changes to material purchases and process have now been implemented to address these issues. Compared with the fourth quarter of fiscal 2003, cost of sales for the first quarter of 2003 decreased $1.5 million from $5.2 million.
Income Tax Recovery
During the first quarter of fiscal 2003, the Company received tax reassessments of prior years, settling a number of outstanding tax issues. The first quarter tax recovery includes approximately $4.8 million relating to refunds of taxes to the Company from those reassessments.
Due to the continued uncertainty in the economy, Corel is not providing specific guidance for upcoming quarters in fiscal 2003. However, based on management expectations and consistent with previous guidance, the Company expects to achieve positive EBITDA in fiscal 2003.
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