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Red Hat Reports First Quarter Results
  • Revenue of $156.6 Million, up 32% Year-over-Year
  • Operating Income Increased 33% Year-over-Year
  • Operating Cash Flow Increased by 60% Year-over-Year

RALEIGH, N.C.--(BUSINESS WIRE)--June 25, 2008--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2009 first quarter ended May 31, 2008.

The first quarter was a solid start to the fiscal year, stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. With our recognized value advantage and award winning technology solutions, we continued to see top enterprise customers expand Red Hat deployments and new customers migrate to our solutions.

Total revenue for the quarter was $156.6 million, an increase of 32% from the year ago quarter and 11% from the prior quarter. Subscription revenue for the quarter was $130.7 million, up 27% year-over-year and 7% sequentially.

Net income for the quarter was $17.3 million, or $0.08 per diluted share, compared with $16.2 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $37.0 million, or $0.18 per diluted share, after adjusting for stock compensation and tax expense as detailed in the tables below. This compares to non-GAAP adjusted net income of $33.7 million, or $0.16 per diluted share in the year ago quarter.

Operating cash flow totaled $63.4 million, compared to $39.7 million from the year ago quarter and $54.5 million from the prior quarter. At quarter end, the company's total deferred revenue balance was $491.8 million, an increase of 36% on a year-over-year basis and 4% sequentially. Total cash, cash equivalents and investments as of May 31, 2008 were $1.35 billion.

Other highlights include the following:

  • Red Hat launched major releases of its flagship products; Red Hat Network Satellite 5.1, Red Hat Enterprise Linux 5.2, and JBoss Operations Network 2.0. Also Red Hat released Fedora 9 to the open source community.
  • Red Hat's middleware business continued to gain momentum in the quarter. JBoss middleware solutions were positioned in the Leadership quadrant of Gartner Inc.'s Magic Quadrant for Enterprise Application Servers for a third consecutive year. JBoss also received high marks in a survey of application development professionals published by Forrester Research on April 25, 2008 Application Server Quality: Review Your Assumptions.
  • Red Hat was named the #1 IT vendor in Japan by IT workers surveyed in the Nikkei Access' April 2008 study for the second consecutive year.
  • Our execution this quarter enabled us to deliver a combination of strong revenue, operating income and cash flow growth, stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. We achieved these results while continuing to invest in our infrastructure and technologies to enable future growth.

    Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. A live webcast of Red Hat's results will begin at 5:00 pm ET today and can be accessed by the general public at Red Hat's investor relations website at http://investors.redhat.com. A replay of the webcast will be available shortly after the live event will have ended.

    About Red Hat, Inc.

    Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with over 55 offices spanning the globe. CIOs have ranked Red Hat first for value in Enterprise Software for four consecutive years in the CIO Insight Magazine Vendor Value survey. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with applications, management and Services Oriented Architecture (SOA) solutions, including the JBoss Enterprise Middleware Suite. Red Hat also offers support, training and consulting services to its customers worldwide. Learn more: www.redhat.com.

    Forward-Looking Statements

    Certain statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: risks related to the integration of acquisitions; the ability of the Company to effectively compete; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; adverse results in litigation; and changes in and a dependence on key personnel, as well as other factors contained in our most recent Annual Report on Form 10-K (copies of which may be accessed through the Securities and Exchange Commission's website at http://www.sec.gov), including those found therein under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. The forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of the press release.

    LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries.

                                RED HAT, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                  (In thousands - except per share amounts)
    
    
                                                       Three Months Ended
                                                       -------------------
                                                        May 31,   May 31,
                                                         2008      2007
                                                       --------- ---------
    Revenue:
    
       Subscriptions                                   $130,694  $103,045
       Training and services                             25,941    15,828
                                                       --------- ---------
    
    
          Total subscription, training and services
           revenue                                      156,635   118,873
                                                       --------- ---------
    
       Cost of revenue:
    
       Subscriptions                                      8,957     7,601
       Training and services                             17,472    10,663
                                                       --------- ---------
    
    
          Total cost of subscription, training and
           services revenue                              26,429    18,264
                                                       --------- ---------
    
    
    Total gross profit                                  130,206   100,609
    
    Operating expense:
       Sales and marketing                               59,271    46,209
       Research and development                          28,911    21,787
       General and administrative                        22,114    17,661
                                                       --------- ---------
    
          Total operating expense                       110,296    85,657
                                                       --------- ---------
    
    Income from operations                               19,910    14,952
    Other income, net                                    10,020    13,578
    Interest expense                                     (1,586)   (1,495)
                                                       --------- ---------
    
    Income before provision for income taxes             28,344    27,035
    Provision for income taxes                           11,054    10,814
                                                       --------- ---------
    
    Net income                                         $ 17,290  $ 16,221
                                                       ========= =========
    
    Net income-diluted                                 $ 18,184  $ 17,100
                                                       ========= =========
    
    Net income per share:
       Basic                                           $   0.09  $   0.08
       Diluted                                         $   0.08  $   0.08
    
    Weighted average shares outstanding:
       Basic                                            190,779   193,082
       Diluted                                          218,853   221,407
    
    Diluted net income per share computation:
    GAAP Net income, basic                             $ 17,290  $ 16,221
    Interest expense on convertible debentures, net of
     related GAAP tax effects                               435       428
    Amortization of debt issuance costs, net of related
     GAAP tax effects                                       459       451
                                                       --------- ---------
    
    GAAP Net income, diluted                           $ 18,184  $ 17,100
                                                       ========= =========
    
                                RED HAT, INC.
                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)
    
                                    ASSETS
                                                    May 31,   February 29,
                                                     2008         2008
                                                  ----------- ------------
                                                  (Unaudited)
    Current assets:
       Cash and cash equivalents                  $  610,540   $  677,720
       Investments in debt securities                285,535      312,442
       Accounts receivable, net                      114,975      127,002
       Prepaid expenses and other current assets      85,708       75,192
                                                  ----------- ------------
    
           Total current assets                    1,096,758    1,192,356
    
       Property and equipment, net                    73,341       68,557
       Goodwill                                      358,335      340,314
       Identifiable intangibles, net                 112,832       93,823
       Investments in debt securities                453,073      341,781
       Other assets, net                              43,007       43,151
                                                  ----------- ------------
    
           Total assets                           $2,137,346   $2,079,982
                                                  =========== ============
    
                     LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
       Accounts payable                           $   11,932   $   17,341
       Accrued expenses                               46,993       43,260
       Deferred revenue                              351,242      339,088
       Convertible debentures                        570,000      570,000
       Other current obligations                       1,001           59
                                                  ----------- ------------
    
           Total current liabilities                 981,168      969,748
    
       Deferred lease credits                          4,844        4,977
       Long term deferred revenue                    140,582      133,805
       Other long term obligations                    19,359       20,261
       Convertible debentures                              -            -
    Stockholders' equity:
       Common stock                                       21           21
       Additional paid-in capital                  1,208,585    1,170,328
       Accumulated deficit                           (10,912)     (28,202)
       Treasury stock, at cost                      (202,093)    (192,946)
       Accumulated other comprehensive income
        (loss)                                        (4,208)       1,990
                                                  ----------- ------------
    
           Total stockholders' equity                991,393      951,191
                                                  ----------- ------------
    
           Total liabilities and stockholders'
            equity                                $2,137,346   $2,079,982
                                                  =========== ============
    
                                RED HAT, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                                (In thousands)
    
    
                                                      Three Months Ended
                                                     ---------------------
                                                      May 31,    May 31,
                                                        2008       2007
                                                     ---------- ----------
    
    Cash flows from operating activities:
    Net income                                       $  17,290  $  16,221
    Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                     9,097      7,234
       Deferred income taxes                             8,767      8,330
       Share-based compensation expense                 10,561      8,386
       Excess tax benefits from share-based payment
        arrangements                                    (8,967)   (12,610)
       Provision for doubtful accounts                    (151)       582
       Amortization of debt issuance costs                 752        752
       Other                                               (40)         -
    Changes in operating assets and liabilities net
     of effects of acquisitions:
       Accounts receivable and earnings in excess of
        billings                                        19,320     (3,917)
       Prepaid expenses and other current assets        (5,003)      (738)
       Accounts payable                                 (5,570)    (4,223)
       Accrued expenses                                  1,986     (1,764)
       Deferred revenue                                 15,454     21,564
       Other assets                                       (134)       (92)
                                                      --------   --------
    
       Net cash provided by operating activities        63,362     39,725
                                                     ---------- ----------
    
    Cash flows from investing activities:
       Purchase of investment securities              (305,646)  (341,175)
       Proceeds from sales and maturities of
        investment securities                          216,534    215,480
       Acquisitions of businesses, net of cash
        acquired                                       (43,750)   (11,784)
       Purchase of property and equipment               (9,522)    (6,407)
       Purchase of developed software and other
        intangible assets                               (1,615)    (3,488)
                                                     ---------- ----------
    
       Net cash used in investing activities          (143,999)  (147,374)
                                                     ---------- ----------
    
    Cash flows from financing activities:
       Excess tax benefits from share-based payment
        arrangements                                     8,967     12,610
       Proceeds from exercise of common stock
        options                                         11,447      3,074
       Purchase of treasury stock                       (9,147)         -
       Structured stock repurchase                       1,989          -
       Other borrowings, net                                43      2,232
                                                     ---------- ----------
    
       Net cash provided by financing activities        13,299     17,916
                                                     ---------- ----------
    
    Effect of foreign currency exchange rates on
     cash and cash equivalents                             158       (122)
    Net decrease in cash and cash equivalents          (67,180)   (89,855)
    Cash and cash equivalents at beginning of the
     period                                            677,720    527,239
                                                     ---------- ----------
    
    Cash and cash equivalents at end of period       $ 610,540  $ 437,384
                                                     ========== ==========
    
                                RED HAT, INC.
    NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF GAAP RESULTS
                         TO NON-GAAP ADJUSTED RESULTS
                                 (Unaudited)
                  (In thousands - except per share amounts)
    
    
    Non cash share-based compensation expense
     included in Consolidated Statements of
     Operations:
    
                                                        Three Months Ended
                                                        ------------------
                                                         May 31,   May 31,
                                                             2008    2007
                                                        ------------------
    
    Cost of revenue                                        $   681 $   582
    Sales and marketing                                      3,996   2,514
    Research and development                                 2,508   2,125
    General and administration                               3,376   3,165
                                                        ---------- -------
    Total stock based compensation expense                 $10,561 $ 8,386
                                                        ========== =======
    
    
    
    
    Reconciliation of GAAP results to non-GAAP
     adjusted results
    
                                                        Three Months Ended
                                                        ------------------
                                                         May 31,   May 31,
                                                             2008    2007
                                                        ------------------
    
    GAAP net income                                        $17,290 $16,221
    
    GAAP provision for income taxes                         11,054  10,814
                                                            ------  ------
    
    GAAP income before provision for income taxes          $28,344 $27,035
    
    Add: Non-cash share-based compensation expense
     per FAS 123R                                           10,561   8,386
                                                            ------  ------
    
    Non-GAAP adjusted income before provision for
     income taxes                                          $38,905 $35,421
    
    Non-GAAP cash provision for income taxes               $ 1,945 $ 1,771
                                                        ---------- -------
    
    Non-GAAP adjusted net income                           $36,960 $33,650
                                                        ========== =======
    
    Non-GAAP adjusted net income-diluted                   $38,352 $35,042
                                                        ========== =======
    
    Non-GAAP adjusted net income per share:
        Basic                                              $  0.19 $  0.17
        Diluted                                            $  0.18 $  0.16
    
    
    Non-GAAP diluted net income per share
     computation:
    Non-GAAP adjusted net income                           $36,960 $33,650
    Interest expense on convertible debentures, net
     of related 5% cash tax effects                            677     677
    Amortization of debt issuance costs, net of
     related 5% cash tax effects                               715     715
                                                            ------  ------
    
    Non-GAAP adjusted net income-diluted                   $38,352 $35,042
                                                        ========== =======
    
                                RED HAT, INC.
         RECONCILIATION OF GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
                                 (Unaudited)
                  (In thousands - except per share amounts)
    
    
    
    Reconciliation of GAAP results to non-GAAP adjusted
     results
    
                                                       Three Months Ended
                                                       -------------------
                                                        May 31,   May 31,
                                                         2008      2007
                                                       --------- ---------
    
    GAAP Gross profit                                  $130,206  $100,609
    
    Add: Non-cash share-based compensation expense per
     FAS 123R                                               681       582
                                                       --------- ---------
    
    Non-GAAP gross profit                              $130,887  $101,191
                                                       --------- ---------
    
    Non-GAAP gross margin                                    84%       85%
    
    
                                                       Three Months Ended
                                                       -------------------
                                                        May 31,   May 31,
                                                         2008      2007
                                                       --------- ---------
    
    GAAP operating expenses                            $110,296  $ 85,657
    
    Deduct: Non-cash share-based compensation expense
     per FAS 123R                                        (9,880)   (7,804)
                                                       --------- ---------
    
    Non-GAAP adjusted operating expenses               $100,416  $ 77,853
                                                       --------- ---------
    
    
                                                       Three Months Ended
                                                       -------------------
                                                        May 31,   May 31,
                                                         2008      2007
                                                       --------- ---------
    
    GAAP operating income                              $ 19,910  $ 14,952
    
    Add: Non-cash share-based compensation expense per
     FAS 123R                                            10,561     8,386
                                                       --------- ---------
    
    Non-GAAP adjusted operating income                 $ 30,471  $ 23,338
                                                       --------- ---------
    
    Non-GAAP adjusted operating margin                     19.5%     19.6%
    

    CONTACT: Red Hat
    Corporate Communications:
    Kerrin Catallozzi, 919-754-4268
    kcatallo@redhat.com
    or
    Investor Relations:
    Tom McCallum, 919-754-4630
    investors@redhat.com
    SOURCE: Red Hat, Inc.

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