Filed by Inprise Corporation
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: Inprise Corporation
Commission File No. 0-16096
On April 27, 2000, Inprise Corporation held the following analyst
conference call:
INPRISE/BORLAND
ANALYST CONFERENCE
APRIL 27, 2000
OPERATOR: Ladies and gentlemen, thank you for standing by, and welcome to
the Inprise Borland First Quarter 2000 Operating Results Conference Call.
At this time, all participants are in a listen-only mode. Later, we will
conduct a question and answer session; instructions will be given at that
time. If you should require assistance during the call, please depress
star, followed by zero. As a reminder, this conference is being recorded. I
would now like to turn the conference over to our host, Ms Marilee Adams.
Please, go ahead.
MARILEE ADAMS: Good afternoon. Welcome to the Inprise-Borland financial
conference call. I just want to go through the forward-looking statement:
forward-looking statements may be made during this call. These
forward-looking statements, including but not limited to, those concerning
Inprise-Borland's future financial performance, future market development,
position in such markets, future products, product availability dates. And
the potential performance, futures of, or benefits to be derived from the
company's products involve a number of uncertainties and risks, and actual
events or results may differ materially. Factors that could cause actual
events or results to differ materially include, among others, the
following: possible disruptive effects of the organizational or personnel
changes in the company, system customer demand, risk associated with the
planned merger with Corel, market acceptance of the company's new or
enhanced products, delays in scheduled product availability dates, actions
or announcements by competitors, software errors, general business
conditions, and market development and growth rates in the client server
and Internet software markets, and other factors as described in the
company's SEC report 10-K and 10-Q.
I would like to introduce our interim president and CEO, Dale Fuller. Dale--
DALE FULLER: Thank you, Marilee. It's been a year now since I've been here
as interim CEO and president of the company, and today, we're announcing
results that indicate that we are making progress towards executing our
plan. Today, I'll provide you with some more details on how we'll continue
to rebuild Inprise-Borland to drive towards operational profitability.
First, I'd like to ask Fred Ball, our CFO, to review the financial results.
FRED BALL: Thank you, Dale. Before getting into the numbers, I'd like to
update you on our progress against the priorities outlined in our last
call. We continue to make progress towards our operating model, as today's
results show. During the first quarter, we continued to streamline our
support infrastructure, including our facilities utilization. We've
consolidated our space utilization in both our Scott Valley (?) and San
Mateo offices. We have also completed closure of certain underutilized
sales offices. Finally, we sold the Scott Valley facility. The transaction
closed in late March, and the cash received from the transaction is
reflected in the quarter-end cash balance. With the sale of the building,
we anticipate a net benefit of about $1 million per quarter to the bottom
line, factoring in the reduction of deprecation costs and interest to be
earned on the cash received from the sale.
With that, I would like to review the numbers for the quarter. For the
first quarter of 2000, Inprise-Borland Corporation had revenues of $46.5
million, up from $43.4 million in the same quarter a year ago and up
slightly from revenues reported in the fourth quarter in 1999. The Q1
revenue mix was Delphi C++, 39%; JBuilder, 18%; Enterprise, 21%; and
services and other, 22%. These figures compare with 39%, 14%, 22%, and 25%,
respectively, in the fourth quarter of 1999. When compared to Q4 1999, the
Q1 revenue mix reflects an anticipated decline in our Delphi tools
business, offset by increases in C++ Builder revenues resulting from the
release of C++ Builder 5. We also released JBuilder 3.5 late this quarter,
which pushed JBuilder revenues up 27% from Q4 1999 and above levels seen in
Q1 99. JBuilder
Enterprise product revenues were down slightly, quarter over quarter, and
as compared to the year ago period. Enterprise technical support revenue,
however, improved as a result of better integrating the skills of services
to provide our Enterprise customers as full-service package.
We continue to be successful in winning development contracts with key
financial and telecommunications customers.
Professional services revenues were down from the previous quarter, as we
consolidated our professional service offerings. However, professional
services margins improved as a result of increase utilization improved
during the quarter. Excluding a charge for merger-related expenses of $1.5
million, operating expenses for the quarter were $38.3 million, down $3
million from the fourth quarter of 1999. Operating spending reductions were
seen across the board, specifically SG&A costs were down $2.6 million, due
to a number of factors including reduced facilities' costs, reduced
employee head count, and the elimination of certain corporate adverting
conducted in Q4 of last year.
Other Income was $2.2 million and consisted primarily in interest income.
Capital expenditures and depreciation for the quarter were $400,000 and $8
million respectively. EBITDA for the quarter was $3 million. The company's
financial position continues to improve with cash and cash equivalent to
short term investments approximating $240 million at March 31, 2000, up
from approximately $198 million at the end of the last quarter. The company
was cash positive from operations in Q1 reflecting our third straight
quarter of positive cash results. During the quarter we saw DSOs increase
slightly from 45 days in Q4 to 56 days in Q1. Going forward, we continue to
believe that we can hold DSOs in the 60-day range.
We anticipate incurring further merger-related expenses in Q2. We will
continue to break out those costs in future quarters to give you better
visibility of our operating cost structure. Now, I'd like to turn the call
back to Dale.
DALE: Thank you, Fred. We've accomplished a lot in the last year. Still, we
have a long way to go. As Fred mentioned, the company is fully committed to
investing in companies and technologies for the Internet. We are focusing
on three critical initiatives: application development tools for all major
operating systems, Internet access infrastructure tools, and providing
integration frameworks for application service providers. We are creating
solutions that enable companies to move their businesses to the Internet
quickly and fast, and creating tools that leverage new platforms, like
Linux, Solaris, and Windows2000, and providing services to application
service providers.
Let me tell you about some of the progress we've made over this last
quarter. We shipped C++ Builder 5.0, the latest version of our
award-winning development system for development of Internet applications,
distributed and Windows applications. We posted our C++ 5.5 Complier, the
high performance foundation of C++Builder 5.0, for free download from our
website. To date we have received hundreds of thousands of downloads of its
release.
We announced JBuilder 3.5 a new version of our Java development tools that
now allows programmers and developers to and deploy on a wide choice of
platforms, including Linux, Solaris, and Windows. We've continued to
execute on our ___ strategy. In addition to JBuilder 3.5, the company has
also announced Linux versions of its application server 4.0 and VisiBroker
4.0. We also announced strategic alliances with TurboLinux to cooperate, to
test, to certify, to integrate, to enhance and market their products and
our products for the Linux operating system for worldwide distribution. We
have also assigned MOUs (memorandums of understanding) with other Linux
providers: Caldera, Mandrix, Souse, just to name a few. The company also
announced the first public test of its InterBase 6.0, it's S2L database for
the Linux operating system.
Other field test versions for WindowsNT and the Slash platform will be
available shortly. We are still on track for InterBase to be formed into a
separate company. This is scheduled to happen later this quarter.
We continue to see strong sales of our Enterprise products. Enprise
Application Server 4.0, the only application server currently in the
marketplace that fully integrates both Corba and EJB (Enterprise Java Bean)
technologies and VisiBroker 4.0 (our awarding-winning object request
broker) designed to facilitate the development and deployment of
distributed Enprise applications that are scalable, flexible, easy to
maintain and based on industry standards. This quarter we have closed
Enterprise design-wins with UUNet, Commerce1, GE Medical Systems, to name a
few. They have chosen us for our superior technology.
In the first quarter, the sales of our core product, Development Tools,
generated almost 60% of our total revenues. As well as, our geographic
revenue distribution is about 60%, 40% US related. We also said we would
continue to pursue relationships with major technology partners. We
recently announced design wins with Saver Technologies, Wireless Maingate,
Hitachi, and eBank (the largest e-commerce bank in the UK) and others. The
market continues to be very competitive, but these leading companies
continue to recognize to the true value that Inprise/Borland Technologies
bring to them, to their customers, and to their bottom line.
As you are aware, we filed a lawsuit against Iona for unfair practices. I
would like to reiterate the while we welcome robust competition; we feel
Iona has crossed the line. We filed complaints to protect our business and
prevent unfair competition, which includes solicitation of our employees,
interfering with our customers by making disparaging statements about the
company, and ___ for spreading misinformation about our products. With this
matter of litigation and with a large part of the complaint being sealed, I
am not in a position to discuss it any further.
Now, I'd like to review our progress from last quarter and provide you with
some milestones for the upcoming quarter. Last quarter, we said we'd
partner with the Linux players. On this front we've made some investments
in TurboLinux and Troll Tech, and we're looking at a bunch of others. These
companies will help us to leverage our Linux strategy by providing
technologies that we can leverage our products, Kylix would be one, and
other products coming. We also signed several MOUs with Linux distributors:
Caldera, Mandrix, Souse.
We will continue to drive towards operational profitability in Q3 of 2000.
Our results speak to this. This quarter will be focused on establishing
additional relationships with targeted financial service companies. We will
continue to focus on operational profitability. We anticipate some
merger-related expenses that may skew the timing. We plan on competing the
InterBase business unit becoming its own company and establishing the
VisiGenics business as a separate business within the company.
I'm sure there are questions concerning our pending merger with Corel. At
this point, and until the final S-4 disclosure document is distributed
there is not much that I am in the position to discuss. I will say that we
were extremely surprised by Corel's First Quarter financial results and by
its recent statements concerning its cash position. We have discussed these
financial issues with Corel and will continue to do so. Beyond that, I have
no comment on the pending merger. We will continue to perform under the
merger agreement, and at this point, we anticipate the shareholder vote
being held sometime this summer. I cannot give you exact timing until the
S-4 is completed. McKenzie (?) and Company have been assisting us in the
strategic division and integration plans in connection with the merger. At
this point, I will make no comments about the integration plans.
In closing, I would like to say that we have a vision of making the
Internet exciting, enabling, and an essential part of everyone's life, and
we're executing on that plan. I feel (and our current results speak to
this) that we're moving in the right direction. However, there are still
lots of risks that we may have to continue to manage through. Now, I'd like
to answer any questions you might have. Operator?
OPERATOR: Thank you, Ladies and gentlemen, we will now begin the question
and answer session. If you wish to ask a question, please depress the one
on your touch-tone phone. You will hear a tone indicating that your line
has been placed in queue, and you may remove your line from queue at any
time by depressing the pound key on your touch-tone phone. If you are using
a speakerphone, please pick up the handset before pressing any numbers. One
moment please for our first question. Our first question comes from Brent
Williams with McDonald Investments. Please, go ahead.
BRENT WILLIAMS: Hi guys. Two things: one is, can you give a sense of
perhaps the head count that will be moved over to the InterBase unit, as
you start to complete that reorganization; can you give any other comments
or color on InterBase in the Linux environment. Secondly, can you give any
color on the Linux versus Windows trends that you see on the Delphi and
JBuilder business?
FRED: Yes, Brent. This is Fred. The numbers for InterBase--the head count
is probably around 10 people, but there are a number of expenses, probably
in the couple hundred thousand range that will end up being moved over as
we separate that segment out.
DALE: The other question was how is this database in the Linux environment
versus the Windows environment, Brent?
BRENT: Yes, can you give me any trends because you guys are doing some
interesting things there, can you give us any--
FRED: Yes, this is Fred again. The product continues to be very successful
in its own right, even before 6.0 comes out. We've probably had $2-2.5
million worth of revenue from InterBase in Q1. So, it's still getting well
received, and people are requesting the product. I think that as it moves
to open source with 6.0 it will be even more successful.
DALE: But, if you look at the opportunity that it has and the demand that's
in there; in fact, it's downloading tens of thousands of copies of its code
right now off its website per week. As the move is happening with the Linux
platform in the server environment for websites and server applications and
the application service providers out there, they need database
applications. The database application here happens to be open source,
which anyone can download, change, manipulate, whatever they need to do to
integrate that as part of their application.
The great news about this application versus any other open source
application is this one's bulletproof. This one's been tested over and over
again. It's version 6. It's in battleships and tanks and airplanes, and all
over the world it's being used by hundreds and hundreds of thousands of
people today. So, it's starting to dominate that world. And, again, it's
still in data. So, you're going to see more and more applications moving
that direction as more and more people move to the Internet. So, we see a
tremendous opportunity with it. That's why we've actually set it so that it
can run very streamlined and move and respond very quickly to a very
fast-growing marketplace. What was your second question, Brent?
BRENT: The other thing was, are there any trends as far as the adoption of
Linux versions of the development tools, whether current business or
indicators that you have-- how much of that business is going to move to
Linux? Is it all upside? Is there some transition as developers are
focusing more in that environment? Can you just give me some texture on how
that's going?
DALE: Yes. Let me position it this way and say that in the current market
today, there really are only two players in the Windows environment: Delphi
and VisualBasic. Okay? The fastest way for any VisualBasic code in the
world to get to Linux is through Delphi, because there is not an incentive
on VisualBasic's mind, right now, to be on Linux. So, the fastest way you
can get to Linux, if you are a VisualBasic developer today, is to go
through Delphi, because that's the solution that you have. And, if you
don't care about growth, if you're a developer that doesn't care about
growth, and you're satisfies with the status quo, and you want to avoid the
market called this Linux market that's exploding here you won't go this
direction. So, we see it as a potential growth opportunity for us.
FRED: Another calibration point is that just from a purely ____
perspective, we have more interest in people wanting to write books about
this ___ than we had with Delphi 1. So, that's another piece of seeing some
of the momentum come forward.
BRENT: Great, thanks. That's it for me. Thanks, guys.
OPERATOR: The next question comes from Harry Radovich with Merrill Lynch.
Please, go ahead.
BOB MOTERELLI: This is Bob Moterelli (?). A quick question: from what I
understand, you guys have hired the same firm to give a fairness opinion on
the Corel merger that initially gave you the first opinion. I'm not sure I
understand why we're using the same firm given what's happened and given
the fact that maybe we ought to have somebody else looking at the books and
looking at this from and objective opinion. That's number one. I'll just
wait to hear that.
DALE: Thanks, Bob. Yes, we've actually asked Broadview to look at the
fairness opinion. There are a lot of things that have happened over the
last 12 weeks or 9 weeks, depending on your calendar. The board of
directors on our side wanted to make sure and wanted to look at, in light
of everything that's happened, what is their position today? Leveraging
Broadview only made sense because of timing. They already know the
business. They know the questions they ask, and where to dig and where to
dig, even further into this as we go forward.
BOB: One more question?
DALE: Yes, go ahead.
BOB: How do you justify or come to grips with selling a company for
basically $50 million or actually probably a little more than that--$60
million more than basically what you would get if you turned out the lights
right now and just used a balance sheet to liquidate the company?
DALE: When the merger was entered into, it was entered into as a function
of some long-term, strategic vision that the combined company had. We still
believe in the long-term strategy. Obviously, there are some changes that
have occurred in the financial position of the companies. We're continuing
to operate under the merger agreements that we signed on February 6th. I
don't have any more comments regarding that.
BOB: But, what are you getting from Corel? Maybe I'm misunderstanding, or I
don't understand this entire process. What are you getting from Corel that
you can't get on your own?
DALE: Again, it comes back to what our vision is, Bob. We are trying to
make the Internet exciting and an essential part of everyone's like, and
that goes to productivity software across the Internet to development tools
across the Internet, to tools that allow companies that have to deliver
applications across the Internet. It really is a sole source, one place to
have all those tools together. The only thing that we're leveraging out
there, in the rest of the marketplace, is we're leveraging all the other
Linux providers. We're leveraging the other OS providers, Solaris and
Microsoft as well. It's become the place where it's a transition point;
it's a bridge point to future technologies. Those things have to happen in
the marketplace. Microsoft did it 20 years ago. We're just in the process
of starting down this path where there's an opportunity. We're trying to
leverage that as we go forward. That's it. It's all about the Internet.
You've got to believe that this Internet thing's going to take off, and
it's going to be here.
OPERATOR: The next question comes from Dang Nguyen from Soros Funds.
Please, go ahead.
DANG NGUYEN: When can we expect to have the revised fairness opinion, and
when can we expect the due diligence to be complete?
DALE: The revised fairness opinion will be in the finalized S-4 document.
Our anticipation is that it will happen in the next few weeks. That's when
it will be published. So, we know that the company's working on that now.
DANG: Is it a condition to this merger that we receive a revised fairness
opinion? Is it a condition that we receive one?
FRED: The updated fairness opinion will be in the S-4.
DANG: Okay, thank you.
OPERATOR: Our next question comes from Jim Coleman with William Scott.
Please, go ahead.
JIM COLEMAN: Good afternoon, gentlemen. We manage money, and we do
brokerage work here. We have approximately a half a million shares of
Inprise on our books. So, we are shareholders, not research. From what
you've described, and from what I've read on the news release, it looks
like you guys are doing a heck of a good job at building Inprise/Borland
and turning it around. I know you don't want to go into any comments, too
heavily, on the Corel deal. I know we've been skirting on the issues, but
obviously as you've mentioned very aptly, Mr. Fuller, in the last 12 weeks
there have been some dramatic changes, including the loss of almost $600
million of the market cap. Our clients have lost a good $5 million of
market cap, and are you committed to the original structure of the merger
deal, or is there room for restructure? Because, point blankly, if you take
a look at the two companies, side by side, we shouldn't be selling Inprise
at a discount of shares to Corel. You should be acquiring Corel for the
future. I do see the future in the Linux merger. It's definitely the system
to go with, especially in light of what's happening with Microsoft. But,
doesn't it make sense that possibly it should be the other way around? They
should be selling to you at a discount? Is there any room for any
restructuring, or are you fixed to that original formula?
FRED: This is Fred. We're aware of the changes. We have had meetings and
discussions on the changes. As Dale has said in the past, and I believe he
is committed to shareholder value. We signed a merger agreement on February
6th. We are continuing to operate under that. We have asked Broadview for a
fairness opinion to validate some of the thinking as a function of some of
the changes that have occurred. It's really all we're comfortable talking
about at this point.
JIM: I appreciate, and I'm not trying to go into there. It's just very hard
to explain to the people who have given us money that a company--and
everyone of them that has read the information sees your company as the
diamond and your company as the setting.
DALE: I appreciate the comment. I think I can speak for the Borland team.
We're happy to be able to deliver the results that we do. We're trying to
establish the credibility that we talked about six months ago. I understand
some of your frustrations. We're trying to operate within the model that
we've established and within the agreement that we're under, and I really
don't want to go into it any further. I appreciate the frustration. I
honestly have some myself.
JIM: I'm trying to maintain the frustration in the call, because it's not
productive--
DALE: This is Dale speaking--holding Fred back. We continue to move forward
under the merger agreements.
JIM: Okay, so there is room and flexibility for once the new fairness
opinion comes out that there possibly be a restructuring of the original
deal, especially in light of Corel basically saying without you guys,
they're out of business.
DALE: I am not going to speculate about what may or may not occur in the
future.
JIM: I'm not asking you to speculate. I'm asking if there's room in the
agreement for a restructuring if the fairness opinion comes out that it's
not fair, based on the original evaluation.
DALE: I think if you read the definitive agreement, and you take a look at
the S-4 you will come to the same conclusions that we have.
JIM: Okay. Very well danced around. Thank you, sir.
OPERATOR: The next question comes from My Dang with MD Capital. Please, go
ahead.
MY DANG: Yes, along the lines of protecting shareholder value and operating
within the guidelines of the merger agreement, I have two specific
questions: number one, in light of the disclosure from Corel, if I recall
correctly, don't you guys have the ability to exercise a material adverse
change clause and basically walk around from the deal as a result of the
material adverse change that's taken place at Corel per their disclosure?
And, the second question is along the lines of protecting shareholder
value, why is it that there was not a collar put in place to protect the
value on behalf of the Inprise shareholders when this transaction was
entered into? I realize that what's done is done, but I'd like to
understand why a collar was not used in the transaction, given that that's
a fairly standard provision in mergers.
DALE: Let me answer the first question, and I'll have Fred answer the
second one. Please listen very carefully. I am not in the position to
respond to questions that involve legal interpretations. Question number
two--
FRED: Regarding the collar: there are many schools of though on collars,
and it varies from person to person you talk about regarding the percentage
ownerships of each of the combined companies, acquisitions, mergers, etc.
We went through all that thought process in connection with the merger
agreement that was signed on February 7th, and this is where we are. We
were thinking at that time that a collar was not appropriate in the
situation.
OPERATOR: Our next question comes from Brian Swift with Security Research
Associates. Please, go ahead.
BRIAN SWIFT: A couple of questions. One is on this setting up this
InterBase as a second company. Since I wasn't on the last call, could you
elaborate a little bit on what your strategy is there? Is this to spin it
off, or what?
DALE: Yes, Brian. What we are doing is we're taking the InterBase business
in and of itself. We're open sourcing the software. We're actually taking
all of that technology and spinning it off as a separate company. As that,
we will maintain a minority interest in the company. So, our shareholders
will reap benefits from it as it moves down the path and potentially IPOs
and becomes very, very successful. That's the direction we're moving in.
They're opensourcing the product to the world. It's going to increase the
reach that they have. They're not tied underneath the obligations of the
corporation and how a slow a corporation can move. They can move very
quickly and respond to the market. There is a fast growing market with
InterBase in the Linux world but also in Solaris also in Windows. So, it is
a big opportunity. It gets mass distribution very quickly.
BRIAN: Also, could you estimate what your anticipated merger-related
expenses would be for this quarter?
FRED: It is tough to estimate those. There are ongoing costs associated
with McKenzie's efforts. There are costs associated with the fairness
opinion. There will be other costs associated with integration and PR, etc.
It is a very difficult animal to estimate. It's even more difficult than
any other number I've got, but it really is difficult. I would not be
surprised if it were another $1 million to $2 million.
BRIAN: Okay, a million to two. Okay, and if my memory serves me right that
the termination fee, should you decide to walk away, and you couldn't do it
for cause, is $35 million? Is that right?
DALE: It's $29.5. That termination fee, if you read the definitive
agreement, is only if Corel accepts it.
BRIAN: Yes. Only if they accept it.
FRED: The number in the document is $29.5. I would read in the document if
you have further questions.
BRIAN: And, if the shareholders vote it down?
FRED: It's zero.
BRIAN: Okay. And, sequentially, you were only up about a million dollars
from the December quarter. What's the release's schedule for Q3 and Q4? Do
you see yourselves breaking out of the mid 40s million revenue level that
you've been at over the last couple of years here?
FRED: The operating plan was for us to improve revenues throughout the
year. The instability in the merger has caused some of the Enterprise
business to get delayed. That's a long self-cycle item. So, there is some
risk--we haven't seen a whole lot of it yet, but there is some risk that
the Enterprise business is going to slip out a little bit as a function of
some of this. I think we're going to continue to try to improve the revenue
pattern, but this has caused a little instability in my ability to predict.
We have Kylix stuff coming out in the second half. I've got to tell you,
with Kylix I'm just not sure--it is an unusual OS with respective grass
roots nature. Kylix will be a leading indicator in that marketplace, but it
is very difficult to predict how quickly it will catch on.
BRIAN: Okay. And, it sounds like there is some stickiness to this
termination thing. You can't just pay your $29 million and walk.
DALE: I think that the merger agreement outlines the details on that stuff,
and I would just recommend you to read through that document.
BRIAN: Okay. Well, we discussed that a little bit when we had our lunch,
but I guess--
DALE: Right.
BRIAN: Because, if you've got $240 million in the bank, it's like--let's
get on with our life. So, I guess the other way to do it is to just vote
against it. Those are all the questions I have.
OPERATOR: Next question comes from Brett Patelsky with Tiedemann. Please,
go ahead.
BRETT PATELSKY: Yes. Two questions: how much of your total revenue came
from Linux, and have you been approached by any parties since Corel's
stock's gone down so much?
DALE: Currently, our Linux revenue is a very very small percentage of our
overall revenue stream, because we just announced products to run on Linux.
We've had roughly 40% of all of our JBuilder downloads, free downloads of
these . . . which are hundreds of thousands now, have been Linux-based
platforms. So, I don't have the exact number of the downloads of JBuilder
for Linux, but I would say that it's roughly 40% of hundreds and hundreds
of thousands of downloads we have of JBuilder. Those are the only two
products. ___ for Linux is small today. Through the better part of this
year, you're going to see more Linux products come out and the Linux
markets growing. So, you're going to hopefully start seeing more revenues
coming from that.
FRED: It's not a big component in the numbers today.
BRETT: So, you'd say it's under 5%?
DALE: Yes, way underneath 5%.
FRED: I don't even know if it's a percent.
BRETT: Right.
FRED: I mean the first Linux opportunity that will manifest itself with
some numbers will be ___. As, I said just a few minutes ago, it's very
difficult where that marketplace will go. We're very confident that Linux
will be around for a while, but it's difficult to predict at this time,
which you've seen with other players, as well.
BRETT: Sure. And, the second question?
FRED: I'm sorry, the second question was regarding--?
BRETT: Given all the news coming out of Corel and their stock going down
and us trading $1.50 over our cash value. Have any companies approached us
looking to do something?
DALE: We have a number of strategic relationships with a bunch of different
companies in the software space. The company policy regarding any other
people coming to talk to us in a more material way would be a press release
in the event that, that's required. Other than that, we don't comment on
those kinds of speculations.
BRETT: Okay, great. A great quarter.
DALE: Thank you.
OPERATOR: The next question comes from Rob Rasko with Gruntal. Please, go
ahead.
ROB RASKO: I just wanted to congratulate you on some of the good things
you've been doing and wish you the best of luck on some of this management
nightmare you guys have gotten yourself into. The big questions comes about
Linux and Linux's future and whether you guys or anybody else that you know
of is working on a Linux Windows-type front, so that the average person
could really get in there and start using it?
DALE: You mean doing interface into Windows?
ROB: Right. Correct.
DALE: Do we interface into Linux?
ROB: Is that something that you guys have on the agenda or anybody else
that you know of, because once we get mainstream, that's the next level.
DALE: Let me address that in one way. As you know, we're making
investments. We set up a fund that we would invest in companies that are
providing support technologies, not only to the Linux technologies, but
primarily to the Internet platform. One of those companies is a company
called Troll Tech that builds a GUI interface for Linux for developers, for
users, for everyone out there. We invested in that company. We are using
that technology in some of our development tools for applications as we go
forth, which will create the standard out there for Troll Tech and QT to be
the standard GUI interface for the Linux platform. So, to answer you
question: yes, we're doing it. We're making investments; we're leveraging
outside people and doing that. And, we're using it internally for our own
products, as well.
FRED: Yes, it's the basis for the Kylix ___.
ROB: Okay. Thanks. Bet of luck.
DALE: Thank you.
OPERATOR: Next question comes from Mike Teicher with American Frontier.
Please, go ahead.
MIKE TEICHER: How are you doing, Dale, Fred? Congratulations on a great
quarter.
DALE: Thank you.
MIKE: I understand that last quarter your percentage of sales for
integration software was roughly 30-35%. I'm wondering if that was
maintained this quarter, and within that 35%, what was broken up between
(let's say) software license sales, professional services, and/or total
solutions? And, what were those margins in respective nature?
DALE: The Enterprise business percentage was just slightly lower this
quarter over last quarter, but what was lost on the product side was made
up for on the technical support side, as we bundled those products
together. So, we saw about flat as a percentage and pretty consistent as a
percentage of the overall business, quarter over quarter. It typically it
splits out 65/35, and we continue to see that. The consulting business came
down a little bit, but we tried to consolidate our service offerings and
reposition that. We saw improvement in the margins as a function of doing
that. We also recently hired a VPA of consulting which will help us realign
that business and drive it to growth in a profitable way, going forward.
MIKE: And, what were the margins, in respective nature, let's say between
your consulting, total solution, and licensing sales? Or, even a round
about average.
FRED: I'll have to do some math here. Product licenses typically run around
90%. Technical support side is probably in the 40-50% range, and I would
guess that consulting has improved from 6% up to the mid-teens, if I had to
guess right now.
MIKE: Thank you, very much.
OPERATOR: And the last question will come from Audrey Snell with Mark
Blair. Please, go ahead.
AUDREY SNELL: I have a couple of questions. First of all, what do you
estimate your growth rate with Corel will be in revenues, earnings, and
cash flow?
FRED: Audrey, we're in the middle of putting together an integration plan
with McKenzie, which will include an operating model. When the S-4 comes
out, we'll roll out that operating model on a combined basis.
AUDREY: And, that will be in a couple of weeks, you said?
FRED: Yes, I think if we can get some of the loose ends tied up, in a
couple of weeks we'll get the proxy document out. We'll get it finalized
with the SEC, and then we'll mail it the following week.
AUDREY: Okay. To switch subjects: on the investment in companies such as
Troll Tech, is there any standard agreement that you use, or is each one
negotiated individually? Specifically, do you have an option to buy
additional shares if products or services under development are successful?
DALE: Let me address that. As with any standard venture that's out there,
pre-IPO company, each deal is primarily different from the other. They are
solely negotiated. There are usually lead investors, multiple investors
that go into companies and make investments ___ companies looking for an
equity exchange for cash, to continue to grow, pre-IPO. So, what typically
happens in our deals is that we are a preferred investor with participating
rights on further liquidity events being they're going out for other
equity. That's not always the case; it just depends on the deal, as you
move forward. So, we're doing multiples of these deals; we're moving very
fast, as we go forward out there, and we don't disclose all of those. They
are very private. There isn't one standard form that Kleiner Perkins (?)
uses or anybody else out there uses.
AUDREY: Well, for the purposes of investor's valuation of your equity, how
do we value these investments in terms of the size, scope, and maturity?
DALE: A large portion of that is probably you and I sitting down and
talking. The value is not something that's public at all. The value of
today's company that's pre-IPO company may be worth 1/10 of what it will be
tomorrow. It's very difficult to determine what value is on any given
second on a non-public company. A public company, you just look at the
stock price. You can determine that by how many outstanding shares. Boom,
you've got it. Private entities-- you can do that, because it's based on
what someone's willing to invest in at that time. So, you and I could sit
down and talk about different things, but we don't disclose publicly how
much we invest or what percentage of companies we have. We have to respect
the rights of that private entity. That's their responsibility to disclose
that if they want to. It's a competitive aspect of where we're going.
AUDREY: Okay, the third area that I want to ask about is how is the current
strength and maturity of the Linux market insofar as what you have
expected, and what do you foresee in the second half of the year for the
market itself?
DALE: Well, we're continuing to see tremendous growth in the Linux
marketplace, primarily in the server-based, application service provider
world deployment aspect. It is a significant cost improvement over the
alternatives out there in the marketplace (i.e. in large scale (?) the
architecture being the Solaris platform). We are seeing continued growth in
that. There is a continued demand for application development for those
servers out there, for people who are trying to deploy application and
create new applications. So, we see it about on par; we do not expect
gigantic growth in this market until later in the year as when we're
planning Kylix to be out. If there were an opportunity today to be shipping
hundreds and hundreds of millions of dollars of Kylix, we would have it
today. But, it's all timing, times the market value, and that's the time we
have out there.
We have some tests going on with our alpha version of Kylix with some
developers in the world today. We just released that yesterday to some
alpha customers, and we're planning to have a beta later on this next
quarter--going out to people to test out. So, we're excited about where the
market is and where the business is going as we move forward. Primarily,
the Linux market today has been focused in the nuts and bolts, doing
printer drivers, disc driver routines, those types of things--very
low-level coding. But, we're seeing a big move now to deployment of
business applications. That's right in time with what we thought it was
going to be.
AUDREY: Okay, thank you.
DALE: I want to thank everyone for participating in this call, and you will
see and hear more from us as the quarter goes on. Thank you.
OPERATOR: Ladies and gentlemen, this conference will be available for
replay beginning today, April 27th, at 6:00 PM EDT, running through
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For international participants you may dial 320-365-3844 with the access
code of 509874. That concludes our conference for today. Thank you for your
participation, and thank you for using AT&T Executive Teleconference. You
may now disconnect.
* * * *
This document is being filed pursuant to Rule 425 under the
Securities Act of 1933 and is deemed filed pursuant to Rule 14a-12 under
the Securities Exchange Act of 1934.
Corel has filed a registration statement on Form S-4 with the
United States Securities and Exchange Commission ("SEC") in connection with
the securities to be issued by Corel pursuant to the Merger Agreement,
dated as of February 6, 2000 (the "Merger Agreement"), by and among
Inprise, Corel and a wholly owned subsidiary of Corel. The registration
statement has not been declared effective. This filing also includes the
preliminary joint proxy statement/prospectus for the special meeting of
Inprise stockholders to be held for approval and adoption of the Merger
Agreement. Investors should read carefully this document and the other
documents filed with the SEC by Corel and Inprise with respect to the
merger. The registration statement and the preliminary joint proxy
statement/prospectus contains important information about Inprise, Corel,
the merger, the persons soliciting proxies relating to the merger, their
interests in the merger, and related matters. These documents may be
obtained for free at the SEC's Internet web site, www.sec.gov. The
preliminary joint proxy statement/prospectus and such other documents may
also be obtained for free from Inprise by directing such request to:
Inprise Corporation, 100 Enterprise Way, Scotts Valley, California
95066-3249, Attention: Investor Relations, telephone: (831) 431-1000,
e-mail: [email protected].
In addition to the registration statement and the preliminary joint
proxy statement/prospectus, Inprise and Corel file annual, quarterly and
special reports, and other information with the SEC. You may read and copy
any reports, statements or other information filed by Inprise or Corel 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,
Chicago, and Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Inprise's and Corel's filings
with the SEC are also available to the public from commercial
document-retrieval services and at the Internet web site maintained by the
SEC at www.sec.gov.
In connection with the proposed merger, Inprise will solicit
proxies from its stockholders to approve and adopt the Merger Agreement.
Inprise and the following persons named below may be deemed to be
"participants" in such solicitation: the directors of Inprise (William
Miller (Chairman of the Board), Dale Fuller (Interim President and Chief
Executive Officer), David Heller and William Hooper; and the following
executive officers and employees of Inprise: Fred Ball (Vice President
Finance and Chief Financial Officer) and JoAnne Butler (Vice President and
General Counsel). Information concerning such participants is set forth in
the registration statement filed with the SEC by Corel on April 4, 2000.
The business address of each such participant is c/o Inprise Corporation at
the address set forth above.
