A report from the SCO teleconference

SCO's quarterly earnings teleconference was held on August 31, with Darl McBride, president and CEO, and Bert Young, CFO, present for the call. SCO announced an "active and productive quarter" that "exceeded every bar we set last quarter." "Exceeding every bar" includes, it seems, a net loss of $7,423,000 with legal expenditures of $7.3 million. It's all a matter of where you set the bar.

SCO managed to drag in $678,000 in SCOsource licensing, though the company declined to specify the source or the nature of the income. It was indicated that the revenue was "primarily from two sources"; one of those is clearly EV1Servers.Net, while the other remains a mystery. Their UNIX products performed much better than their legal strategy, bringing in $8,929,000 in the quarter. McBride and Young spent very little time in the teleconference talking up their UNIX products, though McBride did announce a "major upgrade to OpenServer" called "Legend" due for 2005.

In addition to the company's third quarter results, SCO announced a "Shareholder Rights Plan" and a deal with their legal teams to cap legal expenses going forward. The company also reiterated the retirement of BayStar's 40,000 shares of A-1 preferred stock in exchange for $13 million in cash, and 2,105,263 shares of common stock in SCO.

The Shareholder Rights Plan is to "deter coercive takeover tactics," though McBride denied that the plan was put into place to counter any specific takeover attempts. McBride did admit to being "concerned" about the company's stock price. As of this writing, the company's stock is trading at $3.76 per share, a far cry from the high water mark of $22.29 per share. In any case, a large fraction of SCO stock is held by insiders, making a hostile takeover unlikely even without a poison-pill "rights plan."

The deal with Boies, Schiller & Flexner, if finalized, will limit SCO's legal costs to $31 million in costs, but will boost the firm's potential take should SCO manage to win its legal battles. McBride was sketchy on the details, but Boies, Schiller & Flexner will receive between 20 to 33 percent of the take of any award. SCO has already paid out just over $15 million in the past five quarters, according to Young, and will have $12 million left over after the $31 million is taken into account. There is some ambiguity over whether SCO has committed to paying Boies that much regardless of what happens; we will have to see the actual agreement to get an answer to that question.

Despite exceeding every bar they set for the third quarter, the company is still looking at downsizing. According to Young, the company has 230 people now and is looking at closing offices in the U.S. and overseas. Young did clarify that that the company is simply moving from larger offices to smaller offices in some areas.

Once again, the questions posed to SCO during the question and answer period were largely non-confrontational -- though one reporter did press McBride on SCO's legal strategy, and asked McBride whether SCO had bothered to get a "second opinion" to protect SCO's shareholders in the face of "a plethora of legal opinion counter to" SCO's own legal position. McBride's answer, of course, was that SCO had not. McBride also pointed out that many items before the court are under seal, and that the only parties able to fully size up the case are SCO, IBM and the judge.

SCO once again chose to not to allow a representative from LWN to ask a question during the call. While SCO told reporters that they would be limited to one question during the Q&A period, Maureen O'Gara was allowed to ramble though at least six questions and follow-ups during the call. SCO shut down the Q&A rather quickly, citing time constraints.

In stark contrast to previous teleconferences and interviews, McBride refrained from any rhetoric about "stolen" code or the GPL. He did, however, take make references to "IBM-sponsored" websites that have been questioning SCO's legal position. Unfortunately, none of the reporters who were allowed to ask questions pressed McBride on this allegation. Nor did any of the reporters use the occasion to ask specific questions about the filings or McBride's assertion that IBM has not delivered all materials as ordered by the judge in the case.

In all, the teleconference was fairly tame by SCO standards. For those interested in listening to the SCO conference call, there is an archive on SCO's web site.