- Total quarterly revenue fell to $10.08 million from $24.3 million a year ago -- by any measure a steep loss of nearly 59 percent.
- Total year-to-date revenue nosedived about 57 percent, from $79.2 million to $42.8 million.
- Licensing fees -- SCO's bread-and-butter business -- dropped from $10.3 million at this time last year to a mere $120,000 this quarter -- by any measure a precipitous drop of nearly 99 percent.
- Cash and "cash equivalents" are down from $64 million in 2003 to $19.7 million now. That's a cash burn rate of $44 million in one year -- nearly the same amount ($50 million) as SCO's well-documented PIPE deal with BayStar Capital and the Royal Bank of Canada in October 2003.
- The stock value has fallen about 77 percent from a 52-week high of $19.31 to its current level of $4.51.
- According to CFO Bert Young, SCO Group will have only $7 million in operating cash remaining after this quarter.
Yet CEO Darl McBride told a conference-call audience: "We have reason to be optimistic. Our core business is cash-positive, we've capped our legal fees, we've cut our operating costs, and we've closed the book on the BayStar (preferred stock) involvement. We're looking forward to some positive legal judgments this next year involving our IP."
What is wrong with this picture?
Is Mr. McBride looking at the same numbers his company just published? Are we reading them incorrectly? Or is SCO Group playing some kind of game, thinking nobody is really going to look closely at the numbers?
Something I want to mention about this conference call: No hardball questions were asked. SCO Group undoubtedly selected only certain people it expected to ask fluff questions, and fluff questions they got. So we couldn't get to the bottom of these incongruencies. If I were a stockholder, I'd be very angry at this opacity.
Did yours truly ask a question? I had several lined up:
- How will the recent sacking of both the CEO and CFO of its parent company, Canopy Group, affect SCO's business strategy? Canopy is SCO Group's largest single stakeholder.
- How can SCO Group look ahead with optimism, with only $7 million in the bank? It had $63 million in the bank a year ago.
- How is SCO Group going to look for new business, especially with all its public relations problems? The Unix space is not exactly growing.
However, I was not called upon during the 38-minute (only about 15 of those were for questions) conference. (Most calls of this kind last about an hour.) All callers are asked to provide their names, affiliations, and phone numbers upon registering, and when asked, I pressed "Star-1" immediately to get into the queue to ask a question. But no dice.
SCO Group controlled this public information session from start to finish, carefully stating positive-sounding messages that conflict openly with the numbers on the page.
For those of you who, for whatever reason, cannot access the SCO Group report, we provide it here in its entirely:
THE SCO GROUP
Dec. 21, 2004
The SCO Group Announces Fourth Quarter and Fiscal 2004 Results
LINDON, Utah, Dec. 21 /PRNewswire-FirstCall/ -- The SCO Group, Inc.
(Nasdaq: SCOX), owner of the UNIX operating system and a leading provider of
UNIX-based solutions, today reported results for its fiscal fourth quarter and
year ended October 31, 2004.
Revenue for the fourth quarter of fiscal year 2004 was $10,075,000 as
compared to $24,290,000 from the comparable quarter of the prior year. The
decrease in revenue in the fourth quarter of fiscal year 2004 from the
comparable quarter of the prior year was primarily due to a decrease in
SCOsource licensing revenue to $120,000 from $10,316,000 and from continued
competitive pressures on the Company's UNIX products and services.
The net loss attributable to common stockholders for the fourth quarter of
fiscal year 2004 was $6,516,000, or ($0.37) per diluted common share, as
compared to a net loss attributable to common stockholders of $1,568,000, or
($0.12) per diluted common share for the comparable quarter of the prior year.
Included in the net loss attributable to common stockholders for the fourth
quarter of fiscal year 2004 were charges related to a restructuring of
continuing operations, reductions in force and dispositions of long-lived
assets totaling $2,702,000.
"Fourth Quarter achievements demonstrate continued progress at SCO," said
Darl McBride, president and CEO, The SCO Group. "The management team has
maintained its commitment to operate our core UNIX business profitably. With
the benefit of additional efficiency improvements now in place, we expect the
UNIX business will generate cash during fiscal year 2005. During the fourth
quarter we also completed an agreement to cap the legal fees relating to the
pending contract and intellectual property litigation. The combination of
these two positive actions positions us well to pursue our strategy to protect
our contractual and intellectual property rights on behalf of our customers,
employees and shareholders."
For fiscal year 2004, revenue was $42,809,000 compared to revenue for
fiscal year 2003 of $79,254,000. For fiscal year 2004, the net loss
attributable to common stockholders was $16,227,000, or ($1.07) per diluted
common share, compared to net income attributable to common stockholders of
$5,304,000, or $0.34 per diluted common share. Cash and available-for-sale
securities were $31,449,000 at October 31, 2004. In addition, $5,000,000 was
placed in an escrow account and is classified as a component of restricted
cash as of October 31, 2004. This cash will be used to pay for certain
expenses associated with our intellectual property litigation.
UNIX Business Highlights
The fourth quarter of fiscal year 2004 marked the third consecutive
quarter of stable revenue for the UNIX business. The Company's management
team continued to make operating improvements in this business to help it
generate positive cash flow in fiscal year 2005. Additionally, the Company
anticipates releasing the next version of its OpenServer product, code-named
Legend, during the first half of 2005. This product will mark the culmination
of a significant product development effort and reinforces the Company's
investment in its ongoing UNIX business.
During the fourth quarter, the Company launched a new version to its
collaboration product, SCOoffice Server 4.1, which has been gaining acceptance
in various markets throughout the world. In addition, the Company launched
its SCO Marketplace initiative targeted to third-party developers who wish to
participate with the Company in development projects that will benefit and
enhance future SCO products.
On November 4, 2004 the Company filed a Form 8-K with the Securities and
Exchange Commission indicating it had finalized an amended engagement
agreement with the law firms representing the Company in its current
litigation. The revised engagement agreement limits the Company's attorneys
fees after September 1, 2004 associated with its intellectual property
litigation to approximately $31 million (other than contingency fees) and will
enable the Company to finance the litigation through to its conclusion,
including any necessary appeals. The revised engagement agreement will also
lower the Company's ongoing quarterly costs associated with its intellectual
The following statements are forward looking and actual results may differ
materially. See the discussion of certain risks and uncertainties related to
this financial outlook at the end of this release under "Forward-Looking
With the attorneys fees associated with the Company's litigation capped
and a core UNIX business expected to generate positive cash flow during fiscal
year 2005, the Company is in position to pursue its existing litigation
through to its conclusion. The Company will continue to protect its UNIX
contractual and intellectual property rights and to aggressively pursue its
claims through the judicial system.
As previously announced, The SCO Group will host a conference call at
5:00 p.m. EDT today, December 21, 2004, to discuss its fourth quarter and year
end results. To participate in the teleconference, please call 800-565-5442
or 913-981-5591; confirmation code: 818639, approximately five minutes prior
to the time stated above. A listen-only Web cast of the call will be
broadcast live with a replay available the following day. The Web cast and
replay may be accessed from http://ir.sco.com/medialist.cfm.
The SCO Group, Inc. (Nasdaq: SCOX) helps millions of customers in more
than 82 countries to grow their businesses everyday. Headquartered in Lindon,
Utah, SCO has a worldwide network of more than 11,000 resellers and 4,000
developers. SCO Global Services provides reliable localized support and
services to partners and customers. For more information on SCO products and
services, visit http://www.sco.com.
SCO and the associated SCO logo are trademarks or registered trademarks of
The SCO Group, Inc. in the U.S. and other countries. UNIX is a registered
trademark of The Open Group. All other brand or product names are or may be
trademarks of, and are used to identify products or services of, their
This press release, particularly the "Outlook" section, contains forward-
looking statements representing our current expectations and beliefs,
including, among other things: (i) the expectation that we will continue to
pursue our strategy to protect our intellectual property rights and that we
are well positioned to do so; (ii) the expectation that we will generate
positive cash flow from our UNIX business in fiscal year 2005; (iii) the
expectation that our revised engagement agreement with the law firms
representing us in our intellectual property litigation will lower our ongoing
quarterly litigation costs and enable us to finance the litigation through to
its conclusion, including appeals; and (iv) the anticipated release of the
next version of OpenServer in the first half of 2005. These forward-looking
statements and related assumptions are subject to risks and uncertainties that
could cause actual results and outcomes to differ materially from any forward-
looking statements contained herein. These risks and uncertainties include,
without limitation: (a) risks that we will not be successful in our efforts to
protect and enforce our intellectual property rights; (b) risks that our core
UNIX business may continue to decline; (c) risks that we will face increasing
competition from competing providers of operating system products and
services, particularly Linux; (d) risks that the U.S. and international
economic and political conditions will worsen and adversely affect technology
purchases; (e) risks that our SCOsource licensing initiatives will yield fewer
licenses or less licensing revenue than anticipated or that such licensing
revenue will not be generated when or in amounts currently anticipated; (f)
risks that we will require more capital to sustain our business objectives
than we have and that such capital may not be available; and (g) other risks
and uncertainties set forth in our filings with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date
hereof, and we undertake no obligation to update such forward-looking
statements after the date hereof.
Condensed Consolidated Balance Sheets (in thousands) October 31, October 31, 2004 2003 Assets: Cash and cash equivalents $19,693 $64,428 Restricted cash 8,283 2,025 Available-for-sale securities 11,756 4,095 Accounts receivable, net 6,638 9,282 Other current assets 1,870 2,450 Total current assets 48,240 82,280 Property and equipment, net 649 1,148 Goodwill and intangibles, net 5,413 10,452 Other assets 1,098 1,072 Total assets $55,400 $94,952 Liabilities: Accounts payable $7,854 $1,978 Accrued payroll and accrued expenses 7,224 8,506 Accrued compensation to law firms 7,956 10,556 Deferred revenue 4,877 5,501 Derivative related to Series A convertible preferred stock -- 15,224 Other current liabilities 4,916 3,347 Total current liabilities 32,827 45,112 Long-term liabilities 343 508 Minority interest -- 145 Convertible preferred stock -- 29,671 Stockholders' equity 22,230 19,516 Total liabilities and stockholders' equity $55,400 $94,952 Condensed Consolidated Statements of Operations (in thousands, except per share data) Three Months Ended Year Ended October 31, October 31, 2004 2003 2004 2003 Products revenue $8,296 $12,012 $35,352 $45,028 Services revenue 1,659 1,962 6,628 8,380 SCOsource licensing revenue 120 10,316 829 25,846 Total revenue 10,075 24,290 42,809 79,254 Cost of products revenue 857 729 3,221 4,405 Cost of services revenue 861 1,346 4,134 6,354 Cost of SCOsource licensing revenue 4,257 5,288 19,743 9,163 Total cost of revenue 5,975 7,363 27,098 19,922 Gross margin 4,100 16,927 15,711 59,332 Operating expenses: Sales and marketing 3,086 5,971 17,038 24,392 Research and development 2,445 2,870 10,612 11,012 General and administrative 1,833 1,705 8,308 6,230 Compensation to law firms -- 8,956 -- 8,956 Restructuring and other 2,486 -- 2,486 498 Amortization of intangibles 593 895 2,566 3,190 Write-down of investment -- 250 -- 250 Loss on impairment of long-lived assets 216 164 2,355 164 Stock-based compensation 51 277 919 1,204 Total operating expenses 10,710 21,088 44,284 55,896 Income (loss) from operations (6,610) (4,161) (28,573) 3,436 Equity in income (loss) of affiliates (4) 109 111 (62) Other income, net 223 2,886 6,507 2,827 Income (loss) before income taxes (6,391) (1,166) (21,955) 6,201 Provision for income taxes (125) (279) (1,395) (774) Net income (loss) (6,516) (1,445) (23,350) 5,427 Dividends on convertible preferred stock -- (123) 7,123 (123) Net income (loss) applicable to common stockholders $(6,516) $(1,568) $(16,227) $5,304 Basic net income (loss) per common share $(0.37) $(0.12) $(1.07) $0.43 Diluted net income (loss) per common share $(0.37) $(0.12) $(1.07) $0.34 Weighted average basic common shares outstanding 17,436 13,371 15,155 12,261 Weighted average diluted common shares outstanding 17,436 13,371 15,155 15,679 SOURCE The SCO Group, Inc. -0- 12/21/2004