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RALEIGH, NC - March 29, 2007 - Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2007.
Total revenue for the quarter was $111.1 million, an increase of 41% from the year ago quarter and 5% from the prior quarter. Subscription revenue was $95.9 million, up 44% year-over-year and 8% sequentially. For the full year, total revenue was $400.6 million, an increase of 44% over fiscal 2006 revenue, and subscription revenue was $341.2 million, up 48% from the prior year.
Net income for the quarter was $20.5 million or $0.10 per diluted share compared with $14.6 million or $0.07 per diluted share for the prior quarter. Non-GAAP adjusted net income for the quarter was $32.7 million, or $0.15 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 $29.6 million, or $0.14 per diluted share in the prior quarter.
For the full year, net income was $59.9 million or $0.29 per diluted share, compared with $79.7 million or $0.41 per diluted share in the prior year. Non-GAAP adjusted net income for the year was $113.6 million or $0.54 per diluted share, compared to $77.9 million and $0.40 per diluted share the year before.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $56.4 million for the quarter and $217.5 million for the full year. At year end, the company's total deferred revenue balance was $338.6 million, an increase of 52% on a year-over-year basis and 9% sequentially. Total cash, cash equivalents, and investments as of February 28, 2007 were $1.2 billion.
Other highlights included the following:
This past year was characterized by solid execution, rapid growth and global expansion. We have invested in people, systems and technology to continually add value to our customers,
stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. We are pleased with our ability to continue to generate strong cash flow and improve margins while rolling out enhanced solutions, such as the Red Hat Application Stack and Red Hat Enterprise Linux 5.0, to spur 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 the Company'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.
Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high-quality, low-cost technology accessible. Red Hat provides an operating system platform, Red Hat Enterprise Linux, along with applications, management, and middleware solutions, including JBoss Enterprise Middleware Suite. Red Hat is accelerating the shift to service-oriented architectures and enabling the next generation of web-enabled applications running on a low-cost, secure open source platform. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with a focus on security and ease of management. Learn more: http://www.redhat.com.
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; the dependence on key personnel as well as other factors contained in our most recent Quarterly Report on Form 10-Q (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, 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.
Tables follow:
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended Year Ended
------------------ ------------------
Feb 28, Feb 28, Feb 28, Feb 28,
2007 2006 2007 2006
------------------ ------------------
Revenue:
Subscriptions $ 95,906 $ 66,665 $341,206 $230,444
Training and services 15,215 12,056 59,418 47,886
------------------ ------------------
Total subscription, training and
services revenue 111,121 78,721 400,624 278,330
------------------ ------------------
Cost of revenue:
Subscriptions 7,333 5,214 27,457 21,003
Training and services 10,096 7,214 37,279 27,504
------------------ ------------------
Total cost of subscription,
training and services revenue 17,429 12,428 64,736 48,507
------------------ ------------------
Total gross profit 93,692 66,293 335,888 229,823
Operating expense:
Sales and marketing 39,680 23,427 145,562 84,723
Research and development 19,954 11,037 71,038 40,883
General and administrative 17,420 12,068 66,999 46,135
------------------ ------------------
Total operating expense 77,054 46,532 283,599 171,741
------------------ ------------------
Income from operations 16,638 19,761 52,289 58,082
Other income, net 11,902 7,452 43,290 30,053
Interest expense (1,549) (1,507) (6,016) (6,119)
------------------ ------------------
Income before provision for
income taxes 26,991 25,706 89,563 82,016
Provision (benefit) for income
taxes 6,504 (1,611) 29,656 2,331
------------------ ------------------
Net income $ 20,487 $ 27,317 $ 59,907 $ 79,685
================== ==================
Net income-diluted $ 21,467 $ 28,740 $ 63,826 $ 85,455
================== ==================
Net income per share:
Basic $ 0.11 $ 0.15 $ 0.32 $ 0.45
Diluted $ 0.10 $ 0.13 $ 0.29 $ 0.41
Weighted average shares
outstanding:
Basic 192,303 180,898 189,347 178,112
Diluted 220,594 213,482 218,823 207,815
Diluted net income per share
computation:
GAAP Net income, basic $ 20,487 $ 27,317 $ 59,907 $ 79,685
Interest expense on convertible
debentures, net of related GAAP
tax effects 477 692 1,906 2,799
Amortization of debt issuance
costs, net of related GAAP tax
effects 503 731 2,013 2,971
GAAP Net income, diluted $ 21,467 $ 28,740 $ 63,826 $ 85,455
================== ==================
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Feb. 28, Feb. 28,
2007 2006
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 527,239 $ 267,547
Investments in debt securities 350,827 537,324
Accounts receivable, net 87,973 59,792
Prepaid expenses and other current assets 41,026 16,576
----------- -----------
Total current assets 1,007,065 881,239
Property and equipment, net 45,258 35,822
Goodwill 328,837 75,942
Identifiable intangibles, net 94,314 13,467
Investments in debt securities 278,028 272,669
Other assets, net 32,352 35,102
----------- -----------
Total assets $1,785,854 $1,314,241
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,062 $ 5,627
Accrued expenses 38,472 31,960
Deferred revenue 249,615 162,934
Other current obligations 214 401
----------- -----------
Total current liabilities 300,363 200,922
Deferred lease credits 5,235 4,994
Long term deferred revenue 89,020 60,554
Other long term obligations - 213
Convertible debentures 570,000 570,000
Stockholders' equity:
Minority interest - 771
Common stock 20 19
Additional paid-in capital 1,040,892 763,906
Deferred compensation - (2,418)
Accumulated deficit (92,092) (152,113)
Treasury stock, at cost (125,789) (124,125)
Accumulated other comprehensive loss (1,795) (8,482)
----------- -----------
Total stockholders' equity 821,236 477,558
----------- -----------
Total liabilities and stockholders' equity $1,785,854 $1,314,241
=========== ===========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Year Ended
--------------------- ---------------------
Feb 28, Feb 28, Feb 28, Feb 28,
2007 2006 2007 2006
--------------------- ---------------------
Cash flows from operating
activities:
Net income $ 20,487 $ 27,317 $ 59,907 $ 79,685
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 6,161 3,990 23,853 15,434
Deferred income taxes (771) (1,584) 12,232 (2,090)
Share-based compensation
expense 8,014 508 32,434 4,106
Excess tax benefits from
share-based payment
arrangements (10,745) - (15,988)
Gain from repurchase of
convertible debentures - - - (3,140)
Provision for doubtful
accounts 83 674 1,066 1,043
Amortization of debt
issuance costs 752 752 3,008 3,056
(Gain) loss on disposal of
property and equipment - 224 (22) 1,349
Other - 899 (283) 1,660
Changes in operating assets
and liabilities net of
effects of acquisitions:
Accounts receivable (6,674) (4,516) (17,301) (10,790)
Prepaid expenses and other
current assets (6,143) (565) (8,145) (3,085)
Accounts payable 1,306 442 4,844 (2,588)
Accrued expenses 6,409 (1,073) 15,846 10,448
Deferred revenue 26,838 23,049 90,403 91,278
Other assets (94) (36) (298) 186
Net cash provided by
operating activities 45,623 50,081 201,556 186,552
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investment
securities (585,229) (160,266) (592,673) (523,344)
Proceeds from sales and
maturities of investment
securities 258,677 169,932 781,539 502,905
Acquisitions of businesses,
net of cash acquired - (1,500) (149,864) (2,803)
(Purchase) sale of other
investments 319 - 319 (22,267)
Purchase of property and
equipment (7,885) (4,369) (22,635) (16,757)
---------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities (334,118) 3,797 16,686 (62,266)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Excess tax benefits from
share-based payment
arrangements 10,745 - 15,988 -
Repurchase of convertible
debentures - - - (26,301)
Structured stock
repurchases - - 1,514 1,031
Net proceeds from issuance
of common stock under
Employee Stock Purchase
Plan - 1,064 306 3,394
Proceeds from exercise of
common stock options 9,678 29,996 24,328 44,098
Purchase of treasury stock (66) (27) (1,664) (16,716)
Other financing (144) (318) (400) 237
---------- ---------- ---------- ----------
Net cash provided by
financing activities 20,213 30,715 40,072 5,743
---------- ---------- ---------- ----------
Effect of foreign currency
exchange rates on cash and
cash equivalents (471) 1,008 1,378 (2,651)
Net increase (decrease) in
cash and cash equivalents (268,753) 85,601 259,692 127,378
Cash and cash equivalents
at beginning of the period 795,992 181,946 267,547 140,169
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 527,239 $ 267,547 $ 527,239 $ 267,547
========== ========== ========== ==========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
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 Year Ended
Ended
--------------- ----------------
Feb 28, Feb 28, Feb 28, Feb 28,
2007 2006 2007 2006
------- ------- ----------------
Cost of revenue $ 610 $ - $ 2,216 $ -
Sales and marketing 2,280 7 9,033 30
Research and development 2,056 48 7,206 191
General and administration 3,068 453 13,979 3,885
------- ------- -------- -------
Total stock based compensation
expense $8,014 $508 $32,434 $4,106
======= ======= ======== =======
Reconciliation of GAAP Results to non-GAAP adjusted Results
(for prior year comparison purposes only)
Three Months Year Ended
Ended
----------------- ------------------
Feb 28, Feb 28, Feb 28, Feb 28,
2007 2006 2007 2006
-------- -------- ------------------
GAAP Net income $20,487 $27,317 $ 59,907 $79,685
GAAP Provision (benefit) for
income taxes 6,504 (1,611) 29,656 2,331
GAAP Income before provision for
income taxes $26,991 $25,706 $ 89,563 $82,016
Add: Share-based compensation per
FAS 123R (fiscal 2007 only) 8,014 508 32,434 4,106
Deduct: Intrinsic value of stock
options per APB No. 25 (561) (508) (2,471) (4,106)
-------- -------- ------------------
Incremental non-cash share-based
compensation expense 7,453 0 29,963 0
Non-GAAP adjusted income before
provision for income taxes $34,444 $25,706 $119,526 $82,016
Non-GAAP cash provision for income
taxes $ 1,722 $ 1,285 $ 5,976 $ 4,101
-------- -------- --------- --------
Non-GAAP adjusted net income $32,722 $24,421 $113,550 $77,915
======== ======== ========= ========
Non-GAAP adjusted net income-
diluted $34,117 $25,816 $119,117 $83,556
======== ======== ========= ========
Non-GAAP adjusted net income per
share:
Basic $ 0.17 $ 0.13 $ 0.60 $ 0.44
Diluted $ 0.15 $ 0.12 $ 0.54 $ 0.40
Non-GAAP diluted net income per
share computation:
Non-GAAP adjusted net income $32,722 $24,421 $113,550 $77,915
Interest expense on convertible
debentures, net of related 5%
cash tax effects 680 680 2,708 2,737
Amortization of debt issuance
costs, net of related 5% cash tax
effects 715 715 2,859 2,904
Non-GAAP adjusted net income-
diluted $34,117 $25,816 $119,117 $83,556
======== ======== ========= ========
Reconciliation of GAAP cash flow from operating activities to non-GAAP
adjusted cash flow from operating activities
(for prior year comparison purposes only)
Three Months Year Ended
Ended
----------------- -------------------
Feb 28, Feb 28, Feb 28, Feb 28,
2007 2006 2007 2006
-------- -------- -------------------
GAAP Net cash provided by
operating activities $45,623 $50,081 $201,556 $186,552
Add: Excess tax benefits from
share-based payment arrangements 10,745 0 15,988 0
Non-GAAP Net cash provided by
operating activities $56,368 $50,081 $217,544 $186,552
======== ======== ========= =========