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Filed by Caldera Systems, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 of the
Securities Exchange Act of 1934
Subject Company: Caldera Systems, Inc.
Commission File No. 000-29911
CALDERA SYSTEMS, INC.
2000 Q3 EARNINGS CONFERENCE CALL
ALAN HANSEN:
Good Day everyone and welcome to the Caldera Systems Third Quarter
Earnings Conference Call. Today's call is being recorded. Participating today
are Ransom Love, President and Chief Executive Officer, and Alan Hansen, Chief
Financial Officer. Please note that today we have issued a press release with
our third quarter results of fiscal year 2000, which we will be discussing
further in this call.
I wish to point out to the participants on today's call that the
information provided during this call will include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Our
performance is subject to significant risks and uncertainties that could cause
our actual results to differ materially from those that may be projected. Some
of these risks and uncertainties may be specifically mentioned on this call.
These forward-looking statements are made only as of the date of this
earnings-release conference call and Caldera Systems undertakes no obligation to
update or revise the projections of revenue or earnings or other forward-looking
statements whether as a result of new information, future events, or otherwise.
Accordingly, you should not place undue reliance on these forward-looking
statements. Potential risks and uncertainties include, without limitation,
increased competition from companies offering Linux products at discounted
prices; delays in new releases of open source products, such as the Linux
kernel; our reliance on developers in the open source community; new and
changing technologies and customer acceptance of those technologies; the
Company's ability to compete effectively with other companies; failure of our
brand to achieve the broad recognition necessary to succeed; unenforceability of
the GNU general public license; our reliance on third party developers of
components of our software offerings; claims of infringement of third-party
intellectual property rights; and disruption in the Company's distribution sales
channel. For a discussion of these and other risks, please see our filings with
the SEC, including our recent filing on Form 10-Q.
I now turn the call over to Ransom Love, President and Chief Executive
Officer.
RANSOM LOVE:
Good Afternoon. I'd like to welcome everyone to the Caldera Systems
call today, and thank you for joining us in our second earnings report as a
public company.
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I would like to begin by recounting some of our accomplishments for
this third fiscal quarter:
We formed a strategic alliance with InterLan Technologies, a premier
managed technology infrastructure provider. InterLan selected Caldera Systems to
provide the Linux operating systems in its state-of-the-art Internet Utility
Center, as well as for QuickStart, an industry-first program that gets premium
managed servers up and running the same day an order is placed.
Caldera Systems also launched its LPI -based Linux certification and
education programs and courseware--Caldera OpenLearning. OpenLearning is a
series of comprehensive programs that include instructor-led training and
multimedia courseware targeting eSolutions Providers (eSPs). eSPs are VARs,
ISPs, ASPs, consultants, MIS professionals - essentially anyone providing
eBusiness solutions for their customers.
OpenLearning offers the new OpenLinux Solutions Series and three
certification courses that support Linux Professional Institute Level One
certification. Caldera OpenLearning Courseware is available through OpenLearning
providers at 206 locations worldwide.
This program was developed to address one of the impediments to the
deployment of Linux--the lack of trained professionals.
What sets Caldera Systems apart is we take education to eSPs through
OpenLearning Providers worldwide. We don't expect people to come to our
headquarters. Additionally, because our certification courses are
industry-standard, we prepare users of any Linux distribution for LPI
certification.
While certification is important to many individuals and companies,
many IT professionals haven't the time or need. What they want is
solutions-oriented Linux training. Caldera Systems is filling that need.
From its inception, Caldera Systems has focused on the needs of Linux
Development Community.
We believe that we have fulfilled this need with the announcement of
the Linux 2.4 Technology Developer Release Preview which enables early software
development with a beta version of the new Linux 2.4 kernel, Sun Microsystems'
Java HotSpot technology and glibc 2.1.91. Caldera Systems is the first Linux
solutions company to license Java, and Sun and Caldera have worked together to
provide the most current Java technology to the Linux community developers.
With the 2.4 Technology Preview, Caldera underscores its leadership as
the first Linux for business company to license Java technology and the first to
provide those tools to developers for the next generation of 2.4-based Linux
solutions.
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Now applications that businesses depend on can be made available more
readily when the new Linux and Java platforms are fully released. With over 30%
of the Internet running on Linux today, it only makes sense to give them the
tools they need for the next generation of Linux-based business solutions.
Caldera Systems announced the pre-loading of OpenLinux eDesktop 2.4 on
select models of the IBM ThinkPad A series and ThinkPad T series notebooks.
This is ideal for software developers and IT professionals, because the
pre-configured notebooks dramatically cut the time needed to set-up and tune the
system. OpenLinux eDesktop is high-performance client software optimized for the
Internet. It includes powerful Internet-ready applications designed specifically
to help end-users maximize the power of the Internet.
This quarter, due to the delay of the newest release of the Linux
kernel, the Linux Industry deeply discounted the prices of products in order to
move inventory. We believe this has affected our revenue results for the
quarter.
Immediately following this third fiscal quarter, we announced an
industry-changing event. Of course I refer to Caldera Systems proposed
acquisition of the Santa Cruz Operations Server Software and Professional
Services Divisions. We have focused the bulk of our time and attention during
the third quarter to accomplish this acquisition and we are delighted with the
new opportunities it provides for us and for our customers.
We believe this acquisition will increase our ability to generate
revenue and to grow the marketplace for Linux. We will gain access to a
formidable distribution channel of more than 15,000 global partners. We also
achieve global infrastructure from which to provide our customers an operating
platform from the desktop to the largest enterprise needs. We may also deploy
Linux training and support programs through the Professional Services Division
global support and training infrastructure. These represent enormous
opportunities for us as we proceed into the future.
With that, I'll turn it over to Alan Hansen, our Chief Financial
Officer to discuss in more detail our financial performance.
ALAN HANSEN:
Thank you. The total revenue in the third quarter were $1,188,000
compared to revenue of $1,095,000 in the same period in fiscal 1999,
representing growth of 9 percent. For the nine months ended July 31, 2000,
revenue was $3,102,000 compared to $2,176,00 for the previous nine-month period,
an increase of 43 percent.
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Revenues were split approximately 53/47 percent between product and
related revenue and service revenue. Software revenue decreased 37 percent to
$631,000 from $1,008,000 compared to the same period in fiscal 1999. We believe
that these revenue results are due largely to the price discounting mentioned
earlier. The primary components of software revenue were derived from sales of
our eDesktop and eServer products.
Services revenue of $557,000 increased 540 percent from the same period
in the prior fiscal year and 134 percent from prior quarter. The primary
components of services revenue were promotional fees as part of our electronic
Linux marketplace program and education-related offerings.
International revenue continues to increase and represented
approximately 40 percent of total revenue for the quarter.
DSO's are a favorable 66 days, net of reserves and allowances.
Gross margin for the quarter was negative 4 percent, as a result of our
own discounting of software products as well as from the increased percentage of
services revenue where margins have historically been negative.
Our operating expenses for the quarter were $8.8 million, which were
slightly lower than anticipated. The total headcount is now 204 employees
worldwide.
Sales and marketing expenses for the quarter were $4.6 million and were
in line with our operating plan. Our current headcount of sales representatives
is currently on target with plan.
Research and development expenses were $1.1 million, which was lower
than plan due to lower-than-anticipated headcount totals as well as cost savings
realized for localization efforts for international products. We are currently
fortunate to utilize top-notch engineers, and will continue to seek out new
talent to fulfill our R&D requirements.
General and administrative expenses were $2 million and were within
plan.
Amortization of deferred compensation was $1 million and will continue
at approximately this level for the next quarter.
The net loss for the second quarter was $7.5 million or $.19 per share
versus a net loss of $2.2 million or $.13 cents per share in the same period in
the prior fiscal year. The net loss for the first nine months of fiscal 2000 was
$32.3 million or $1.05 per share compared to $4.9 million of $.30 per share for
the first nine months of fiscal 1999.
Looking at the balance sheet, we have total cash and equivalents and
short-term investments of $85.2 million with which to execute our strategic
plan. We recognize that
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this is still the strongest aspect of our financial position at this time,
placing us in a favorable position from which to drive growth.
We will now be happy to answer any questions you may have.
Cautionary Note Regarding Forward-Looking Statements under the Private
Securities Litigation Reform Act of 1995: Information in this release that
involves Caldera's, SCO's and, assuming the acquisition of the SCO Server
Software and Professional Services Divisions (the "Acquisition) is completed,
the combined companies' expectations, beliefs, hopes, plans, intentions or
strategies regarding the future are forward-looking statements that involve
risks and uncertainties. These statements include statements about Caldera's,
SCO's and the combined companies' strategies in the marketplace, their market
positions and their relationships with customers. All forward-looking statements
included in this release are based upon information available to Caldera and SCO
as of the date of the release, and neither Caldera, SCO nor the combined
companies assume any obligation to update any such forward-looking statement.
These statements are not guarantees of future performance and actual results
could differ materially from current expectations. Factors that could cause or
contribute to such differences include, but are not limited to 1) the potential
disruption of Caldera's and SCO's businesses that might result from employee or
customer uncertainty, and lack of focus following announcement of the
Acquisition in connection with integrating the operations of Caldera and SCO; 2)
product integration risk due to overlapping products and technologies; 3) the
possibility that the Acquisition might not be consummated; 4) the effects of the
public announcement of the Acquisition on Caldera's and SCO's stock prices,
their sales and operating results, their ability to attract and retain key
personnel and the progress of certain of their development projects; 5) the risk
that the announcement of the Acquisition could result in decisions by customers
to defer purchases of products of Caldera or SCO; 6) the risk that redundancy in
staffing and infrastructure could reduce efficiency and increase costs; 7) the
difficulties of managing geographically dispersed operations; and 8) the risk
that other benefits sought to be achieved by the Acquisition will not be
achieved. These and other factors are risks associated with Caldera's and SCO's
businesses that may affect their operating results and are discussed in SCO's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999 filed
with the Securities and Exchange Commission ("SEC") on December 28, 1999 and
Caldera's and SCO's quarterly reports on Form 10-Q filed with the SEC.Additional
Information and Where to Find It: It is expected that Caldera will file a
Registration Statement on SEC Form S-4 and Caldera and SCO will file a Joint
Proxy Statement/Prospectus with the SEC in connection with the Acquisition, and
that Caldera and SCO will mail a Joint Proxy Statement/Prospectus to
stockholders of Caldera and SCO containing information about the Acquisition.
Investors and security holders are urged to read the Registration Statement and
the Joint Proxy Statement/Prospectus carefully when they are available. The
Registration Statement and the Joint Proxy Statement/Prospectus will contain
important information about Caldera, SCO, the Acquisition, the persons
soliciting proxies relating to the Acquisition, their interests in the
Acquisition, and related matters. Investors and security holders will be able to
obtain free copies of these documents through the website maintained by the SEC
at http://www.sec.gov. Free copies of the Joint Proxy Statement/Prospectus and
these other documents may also be obtained from Caldera by directing a request
through the Investors Relations portion of Caldera's Web site at
http://www.caldera.com or by mail to Caldera Systems, Inc., 240 West Center
Street, Orem, Utah 84057, attention: Investor Relations, telephone (801)
765-4999.In addition to the Registration Statement and the Joint Proxy
Statement/Prospectus, Caldera and SCO file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information filed by Caldera or SCO at the
SEC public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or
at any of the SEC's other public reference rooms in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
