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RALEIGH, N.C., Dec 22, 2008 (BUSINESS WIRE) -- Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2009 third quarter ended November 30, 2008.
Total revenue for the quarter was $165.3 million, an increase of 22% from the year ago quarter and 1% from the prior quarter. Subscription revenue for the quarter was $135.5 million, up 17% year-over-year and flat sequentially.
Foreign exchange rate changes during the quarter, as compared to the second quarter, reduced quarterly revenues and expenses by $6.9 million and $4.8 million, respectively, resulting in a negative impact on operating income of $2.1 million. For the quarter, GAAP operating income was $21.0 million, or a 12.7% operating margin. After adjusting for stock compensation and amortization expenses, non-GAAP operating income was $38.4 million, or a 23.2% operating margin, up 120 basis points from the prior quarter despite the strengthening US dollar and the Qumranet acquisition.
Net income for the quarter was $24.3 million, or $0.12 per diluted share, compared with $20.3 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $48.4 million, or $0.24 per diluted share, after adjusting for stock compensation, amortization and tax expense as detailed in the tables below. This compares to non-GAAP adjusted net income of $42.8 million, or $0.20 per diluted share in the year ago quarter.
Operating cash flow totaled $59.1 million, compared to $59.6 million from the year ago quarter and $54.3 million from the prior quarter. At quarter end, the company's total deferred revenue balance was $505.1 million, an increase of 20% on a year-over-year basis and 2% sequentially. Total cash, cash equivalents and investments as of November 30, 2008 were $1.1 billion after retiring $285 million of convertible debentures and repurchasing 2 million shares of common stock.
Subsequent to these repurchases, the Company's Board of Directors authorized a new common stock repurchase program with a capacity of up to $250 million.
"Our solid financial results this quarter reflect our strong market position as the low cost, high value provider of infrastructure solutions," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Purchasing decisions for IT have changed dramatically for CIOs. In this budget-constrained environment, IT professionals are adopting open source and more specifically Red Hat to save money and enhance their competitiveness."
"This was a strong quarter where we delivered better-than-expected operating income, net income and cash flow," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "While significant devaluations in most foreign currencies depressed our reported revenue, a combination of focused cost management and natural currency hedging enabled the company to deliver better-than-expected operating margin.
We also took advantage of unusual market conditions and repurchased some of our convertible bonds and common stock. This action reduced the diluted shares outstanding by approximately 11 million, or 6%, and produced a gain of $4.1 million, both improving earnings per share. Our balance sheet remains very strong."
Other highlights include the following:
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.
Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs 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 JBoss Enterprise Middleware. Red Hat also offers support, training and consulting services to its customers worldwide. 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; and changes in and a 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 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.
Tables follow:
| RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands - except per share amounts) | |||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||||||
| Revenue: | |||||||||||||||||||||
| Subscriptions | $ | 135,451 | $ | 115,732 | $ | 401,854 | $ | 327,949 | |||||||||||||
| Training and services | 29,881 | 19,649 | 84,497 | 53,575 | |||||||||||||||||
| Total subscription, training and services revenue | 165,332 | 135,381 | 486,351 | 381,524 | |||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||
| Subscriptions | 8,771 | 8,099 | 27,448 | 24,192 | |||||||||||||||||
| Training and services | 17,765 | 12,827 | 53,025 | 35,062 | |||||||||||||||||
| Total cost of subscription, training and services revenue | 26,536 | 20,926 | 80,473 | 59,254 | |||||||||||||||||
| Total gross profit | 138,796 | 114,455 | 405,878 | 322,270 | |||||||||||||||||
| Operating expense: | |||||||||||||||||||||
| Sales and marketing | 58,514 | 47,653 | 177,350 | 139,955 | |||||||||||||||||
| Research and development | 34,544 | 25,930 | 95,184 | 71,101 | |||||||||||||||||
| General and administrative | 24,768 | 21,419 | 71,060 | 59,013 | |||||||||||||||||
| Total operating expense | 117,826 | 95,002 | 343,594 | 270,069 | |||||||||||||||||
| Income from operations | 20,970 | 19,453 | 62,284 | 52,201 | |||||||||||||||||
| Other income, net | 13,795 | 14,440 | 38,593 | 42,048 | |||||||||||||||||
| Interest expense | (1,249 | ) | (1,581 | ) | (4,365 | ) | (4,641 | ) | |||||||||||||
| Income before provision for income taxes | 33,516 | 32,312 | 96,512 | 89,608 | |||||||||||||||||
| Provision for income taxes | 9,211 | 12,029 | 33,779 | 34,947 | |||||||||||||||||
| Net income | $ | 24,305 | $ | 20,283 | $ | 62,733 | $ | 54,661 | |||||||||||||
| Net income-diluted | $ | 25,147 | $ | 21,177 | $ | 65,392 | $ | 57,342 | |||||||||||||
| Net income per share: | |||||||||||||||||||||
| Basic | $ | 0.13 | $ | 0.10 | $ | 0.33 | $ | 0.28 | |||||||||||||
| Diluted | $ | 0.12 | $ | 0.10 | $ | 0.30 | $ | 0.26 | |||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||
| Basic | 190,665 | 194,038 | 190,978 | 194,741 | |||||||||||||||||
| Diluted | 208,408 | 221,547 | 215,605 | 222,740 | |||||||||||||||||
| Diluted net income per share computation: | |||||||||||||||||||||
| GAAP Net income, basic | $ | 24,305 | $ | 20,283 | $ | 62,733 | $ | 54,661 | |||||||||||||
| Interest expense on convertible debentures, net of related GAAP tax effects | 387 | 435 | 1,273 | 1,304 | |||||||||||||||||
| Amortization of debt issuance costs, net of related GAAP tax effects | 455 | 459 | 1,386 | 1,377 | |||||||||||||||||
| GAAP Net income, diluted | $ | 25,147 | $ | 21,177 | $ | 65,392 | $ | 57,342 | |||||||||||||
| RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In thousands) | |||||||||||||
| ASSETS | |||||||||||||
| November 30, | February 29, | ||||||||||||
| 2008 | 2008 | ||||||||||||
| (Unaudited) | |||||||||||||
| Current assets: | |||||||||||||
| Cash and cash equivalents | $ | 519,837 | $ | 677,720 | |||||||||
| Investments in debt and equity securities | 238,794 | 312,442 | |||||||||||
| Accounts receivable, net | 113,162 | 127,002 | |||||||||||
| Prepaid expenses and other current assets | 78,142 | 75,192 | |||||||||||
| Total current assets | 949,935 | 1,192,356 | |||||||||||
| Property and equipment, net | 68,249 | 68,557 | |||||||||||
| Goodwill | 437,713 | 340,314 | |||||||||||
| Identifiable intangibles, net | 126,260 | 93,823 | |||||||||||
| Investments in debt securities | 317,821 | 341,781 | |||||||||||
| Other assets, net | 64,501 | 43,151 | |||||||||||
| Total assets | $ | 1,964,479 | $ | 2,079,982 | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
| Current liabilities: | |||||||||||||
| Accounts payable | $ | 10,779 | $ | 17,341 | |||||||||
| Accrued expenses | 58,345 | 43,260 | |||||||||||
| Deferred revenue | 352,701 | 339,088 | |||||||||||
| Convertible debentures | 285,500 | 570,000 | |||||||||||
| Other current obligations | 898 | 59 | |||||||||||
| Total current liabilities | 708,223 | 969,748 | |||||||||||
| Deferred lease credits | 4,630 | 4,977 | |||||||||||
| Long term deferred revenue | 152,416 | 133,805 | |||||||||||
| Other long term obligations | 19,329 | 20,261 | |||||||||||
| Convertible debentures | - | - | |||||||||||
| Stockholders' equity: | |||||||||||||
| Common stock | 21 | 21 | |||||||||||
| Additional paid-in capital | 1,267,432 | 1,170,328 | |||||||||||
| Retained earnings (accumulated deficit) | 34,531 | (28,202 | ) | ||||||||||
| Treasury stock, at cost | (232,311 | ) | (192,946 | ) | |||||||||
| Accumulated other comprehensive income (loss) | 10,208 | 1,990 | |||||||||||
| Total stockholders' equity | 1,079,881 | 951,191 | |||||||||||
| Total liabilities and stockholders' equity | $ | 1,964,479 | $ | 2,079,982 | |||||||||
| RED HAT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) | |||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
November 30, 2008 | November 30, 2007 | November 30, 2008 | November 30, 2007 | ||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||
| Net income | $ | 24,305 | $ | 20,283 | $ | 62,733 | $ | 54,661 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||
| Depreciation and amortization | 10,561 | 8,443 | 29,486 | 23,897 | |||||||||||||||||
| Deferred income taxes | 7,031 | 10,343 | 27,260 | 28,557 | |||||||||||||||||
| Excess tax benefits from share-based payment arrangements | (14,790 | ) | (17,087 | ) | (39,246 | ) | (44,206 | ) | |||||||||||||
| Share-based compensation expense | 12,251 | 9,455 | 33,682 | 26,422 | |||||||||||||||||
| Gain on sale of strategic equity investments | - | - | (4,996 | ) | - | ||||||||||||||||
| Gain on repurchase of convertible debentures | (4,129 | ) | - | (4,129 | ) | - | |||||||||||||||
| Amortization of debt issuance costs | 627 | 752 | 2,131 | 2,257 | |||||||||||||||||
| Other | 314 | 477 | 177 | 1,021 | |||||||||||||||||
| Changes in operating assets and liabilities net of effects of acquisitions: | |||||||||||||||||||||
| Accounts receivable | (7,650 | ) | (16,986 | ) | 13,687 | (16,741 | ) | ||||||||||||||
| Prepaid expenses and other current assets | (7,400 | ) | (1,674 | ) | (14,308 | ) | (1,673 | ) | |||||||||||||
| Accounts payable | 1,836 | 148 | (6,138 | ) | (1,959 | ) | |||||||||||||||
| Accrued expenses | 8,774 | 9,660 | 18,576 | 7,278 | |||||||||||||||||
| Deferred revenue | 27,503 | 35,759 | 58,217 | 69,181 | |||||||||||||||||
| Other assets | (85 | ) | 65 | (355 | ) | (132 | ) | ||||||||||||||
| Net cash provided by operating activities | 59,148 | 59,638 | 176,777 | 148,563 | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||
| Purchase of investment securities | - | (354,569 | ) | (331,705 | ) | (863,159 | ) | ||||||||||||||
| Proceeds from sales and maturities of investment securities | 77,498 | 344,345 | 427,314 | 753,303 | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | (101,338 | ) | - | (148,140 | ) | (11,784 | ) | ||||||||||||||
| Proceeds from sale of strategic equity investments | - | - | 5,568 | - | |||||||||||||||||
| Purchase of property and equipment | (4,212 | ) | (10,971 | ) | (18,164 | ) | (25,752 | ) | |||||||||||||
| Purchase of developed software and other intangible assets | (779 | ) | (422 | ) | (3,121 | ) | (4,775 | ) | |||||||||||||
| Net cash used in investing activities | (28,831 | ) | (21,617 | ) | (68,248 | ) | (152,167 | ) | |||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||
| Excess tax benefits from share-based payment arrangements | 14,790 | 17,087 | 39,246 | 44,206 | |||||||||||||||||
| Net proceeds (payments) related to employee exercise or vest of share-based awards | (772 | ) | 5,390 | 16,017 | 13,920 | ||||||||||||||||
| Repurchase of convertible debentures | (280,058 | ) | - | (280,058 | ) | - | |||||||||||||||
| Purchase of treasury stock | (29,999 | ) | (482 | ) | (39,365 | ) | (618 | ) | |||||||||||||
| Structured stock repurchase | - | - | 1,989 | - | |||||||||||||||||
| Proceeds from other borrowings | - | - | - | 2,898 | |||||||||||||||||
| Payments on other borrowings | (48 | ) | - | (72 | ) | (757 | ) | ||||||||||||||
| Net cash (used in) provided by financing activities | (296,087 | ) | 21,995 | (262,243 | ) | 59,649 | |||||||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (1,850 | ) | 2,324 | (4,169 | ) | 3,675 | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (267,620 | ) | 62,340 | (157,883 | ) | 59,720 | |||||||||||||||
| Cash and cash equivalents at beginning of the period | 787,457 | 524,619 | 677,720 | 527,239 | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | 519,837 | $ | 586,959 | $ | 519,837 | $ | 586,959 | |||||||||||||
| 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 | Nine Months Ended | ||||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||
| Cost of revenue | $ | 723 | $ | 583 | $ | 2,047 | $ | 1,736 | |||||||||
| Sales and marketing | 3,352 | 2,637 | 9,554 | 7,587 | |||||||||||||
| Research and development | 3,715 | 2,208 | 9,769 | 6,452 | |||||||||||||
| General and administration | 4,461 | 4,027 | 12,311 | 10,647 | |||||||||||||
Total share-based compensation expense | $ | 12,251 | $ | 9,455 | $ | 33,681 | $ | 26,422 | |||||||||
| Amortization of intangible assets expense included in Consolidated Statements of Operations: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||
| Cost of revenue | $ | 989 | $ | 1,127 | $ | 2,534 | $ | 3,203 | |||||||||
| Sales and marketing | 2,301 | 1,755 | 6,861 | 5,295 | |||||||||||||
| Research and development | 1,049 | 0 | 1,049 | 0 | |||||||||||||
| General and administration | 797 | 449 | 2,254 | 1,347 | |||||||||||||
| Total amortization of intangible assets expense | $ | 5,136 | $ | 3,331 | $ | 12,698 | $ | 9,845 | |||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||
| GAAP net income | $ | 24,305 | $ | 20,283 | $ | 62,733 | $ | 54,661 | |||||||||
| GAAP provision for income taxes | 9,211 | 12,029 | 33,779 | 34,947 | |||||||||||||
| GAAP income before provision for income taxes | $ | 33,516 | $ | 32,312 | $ | 96,512 | $ | 89,608 | |||||||||
| Add: Non-cash share-based compensation expense per FAS 123R | 12,251 | 9,455 | 33,681 | 26,422 | |||||||||||||
| Add: Amortization of intangible assets | 5,136 | 3,331 | 12,698 | 9,845 | |||||||||||||
| Non-GAAP adjusted income before provision for income taxes | $ | 50,903 | $ | 45,098 | $ | 142,891 | $ | 125,875 | |||||||||
| Non-GAAP cash provision for income taxes | $ | 2,545 | $ | 2,255 | $ | 7,145 | $ | 6,294 | |||||||||
| Non-GAAP adjusted net income | $ | 48,358 | $ | 42,843 | $ | 135,746 | $ | 119,581 | |||||||||
| Non-GAAP adjusted net income-diluted | $ | 49,461 | $ | 44,235 | $ | 139,632 | $ | 123,756 | |||||||||
| Non-GAAP adjusted net income per share: | |||||||||||||||||
| Basic | $ | 0.25 | $ | 0.22 | $ | 0.71 | $ | 0.61 | |||||||||
| Diluted | $ | 0.24 | $ | 0.20 | $ | 0.65 | $ | 0.56 | |||||||||
| Non-GAAP diluted net income per share computation: | |||||||||||||||||
| Non-GAAP adjusted net income | $ | 48,358 | $ | 42,843 | $ | 135,746 | $ | 119,581 | |||||||||
| Interest expense on convertible debentures, net of related 5% cash tax effects | 507 | 677 | 1,861 | 2,031 | |||||||||||||
| Amortization of debt issuance costs, net of related 5% cash tax effects | 596 | 715 | 2,025 | 2,144 | |||||||||||||
| Non-GAAP adjusted net income-diluted | $ | 49,461 | $ | 44,235 | $ | 139,632 | $ | 123,756 | |||||||||
| 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 | Nine Months Ended | ||||||||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||||||
| GAAP Gross profit | $ | 138,796 | $ | 114,455 | $ | 405,878 | $ | 322,270 | |||||||||||||
| Add: Non-cash share-based compensation expense per FAS 123R | 723 | 583 | 2,047 | 1,736 | |||||||||||||||||
| Add: Amortization of intangible assets | 989 | 1,127 | 2,534 | 3,203 | |||||||||||||||||
| Non-GAAP gross profit | $ | 140,508 | $ | 116,165 | $ | 410,459 | $ | 327,209 | |||||||||||||
| Non-GAAP gross margin | 85 | % | 86 | % | 84 | % | 86 | % | |||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| November 30,2008 | November 30,2007 | November 30,2008 | November 30,2007 | ||||||||||||||||||
| GAAP operating expenses | $ | 117,826 | $ | 95,002 | $ | 343,594 | $ | 270,069 | |||||||||||||
| Deduct: Non-cash share-based compensation expense per FAS 123R | (11,528 | ) | (8,872 | ) | (31,634 | ) | (24,686 | ) | |||||||||||||
| Deduct: Amortization of intangible assets | (4,147 | ) | (2,204 | ) | (10,164 | ) | (6,642 | ) | |||||||||||||
| Non-GAAP adjusted operating expenses | $ | 102,151 | $ | 83,926 | $ | 301,796 | $ | 238,741 | |||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| November 30, 2008 | November 30, 2007 | November 30, 2008 | November 30, 2007 | ||||||||||||||||||
| GAAP operating income | $ | 20,970 | $ | 19,453 | $ | 62,284 | $ | 52,201 | |||||||||||||
| Add: Non-cash share-based compensation expense per FAS 123R | 12,251 | 9,455 | 33,681 | 26,422 | |||||||||||||||||
| Add: Amortization of intangible assets | 5,136 | 3,331 | 12,698 | 9,845 | |||||||||||||||||
| Non-GAAP adjusted operating income | $ | 38,357 | $ | 32,239 | $ | 108,663 | $ | 88,468 | |||||||||||||
| Non-GAAP adjusted operating margin | 23.2 | % | 23.8 | % | 22.3 | % | 23.2 | % | |||||||||||||