Red Hat First Quarter Revenues Climbed 95% to $16 Million

Research Triangle Park

United States, June 15, 2000

Continued Execution Towards Profitability with Significant Gross Margin Improvement

Red Hat, Inc. (Nasdaq: RHAT), the leader in open source Internet infrastructure solutions, today reported revenue of $16.0 million for the first quarter ended May 31, 2000, a 95% increase over revenue of $8.2 million for the first quarter last year, and 22% higher than fourth quarter 1999 revenue of $13.1 million. Gross margins increased to 54.0% for the quarter, a 6.6 percentage point improvement over the prior quarter.

Adjusting for non-cash, merger, acquisition and other expenses, the Company reported a net loss for the first quarter of fiscal 2001 of $2.5 million, or $0.02 per share, compared to an adjusted net loss for the first quarter of fiscal 2000 of $3.8 million, or $0.08 per share. On a reported basis, the net loss was $14.9 million, or $0.10 per share, compared with a net loss of $4.1 million, or $0.08 per share, for the first quarter of fiscal 2000.

Commenting on the results, Matthew Szulik, president and CEO of Red Hat, Inc., said, "Q1 performance represents continued execution against our plan to double revenue and become profitable in calendar 2001 while leveraging our acquisitions to enter new markets and create new revenue streams."

Highlights for the first quarter include:

  • Unveiled the redhat.com Marketplace, a single, comprehensive Web destination to learn about and purchase products for open source Internet computing initiatives. Participating vendors include Dell, Compaq, IBM, Oracle, Rackspace.com and Zonetrader.com.


  • Launched "What Can Red Hat Do for Me," a service which delivers users a made-to-order report featuring the information, products and services that are right for that customer's needs.


  • Launched "Success Stories," which details the business needs, deployment and cost savings of Red Hat Linux for Internet Infrastructure solutions.


  • Launched the Red Hat E-Learning Curriculum, a collaboration with DigitalThink, a leader in e-learning solutions, to extend Red Hat Linux training and certification to the Web.


  • Extended enterprise-level support to businesses of all sizes with a new per-server support program, a subscription-based, 24x7 annual service that has the flexibility to add systems at increasingly lower costs per system as the number of servers or desktops grows.


  • Extended the relationship with IBM. IBM is pre-loading Red Hat Linux 6.2 on its Netfinity servers for which Red Hat is providing level-three support.


  • Additionally, IBM is offering the Red Hat Certified Engineer program at IBM training centers around the world.


  • Expanded the partnership with Dell by collaborating on the development of the Dell PowerApp.web appliance server, which is powered by the Red Hat Linux 6.2 operating system. Red Hat is also providing support to Dell customers for the PowerApp.web appliance server.


  • Expanded the relationship with Compaq to provide bundled and pre-loaded Red Hat Linux 6.2 on Compaq servers, AlphaStations and select Deskpro PC models.


  • Released pre-production tools and software for the forthcoming Intel Itanium processor platform targeting high-end servers and workstations. Launched eCos 1.3, the latest version of Red Hat's Open Source, configurable, application-specific operating system for embedded systems. eCos provides manufacturers of post-PC devices with the expertise to bring networking applications to embedded devices.


  • Distributing the Red Hat Embedded DevKit and support package, providing software developers with everything needed to create embedded Linux applications on a wide spectrum of pervasive computing platforms.


  • Introduced the Enterprise Channel Partner Program for the largest resellers and network and systems integrators that service some of the world's most successful enterprise companies.


  • Formed Red Hat Ventures, a venture funding and strategic business relationships division to accelerate the breadth of tools, services and technologies available to Red Hat customers.




RED HAT, INC.

Consolidated Statements of Operations


Three months ended



May 31,



2000


1999



(Unaudited)


(Unaudited)

Revenue




Services

8,537,501


4,321,540

Services

6,260,334


3,832,458

Web

1,230,863


80,050

Total revenue

16,028,698


8,234,048






Cost of revenue




Subscription

3,688,543


2,235,901

Services

3,629,234


1,615,890

Web

61,250


123,000

Total cost of revenue

7,379,027


3,974,791






Gross profit

8,649,671


4,259,257






Operating expense




Sales and marketing

9,493,407


3,740,859

Research and development

3,271,184


2,381,782

General and administrative

3,771,148


2,019,577

Amortization of goodwill and intangibles

5,231,387


1,298


Stock-based compensation

3,717,753


371,625


Merger, acquisition and other

3,359,026


-

Total operating expense

28,843,905


8,515,141






Income (loss) from operations

(20,194,234)


(4,255,884)






Other income (expense), net

5,407,190


227,927





Income (loss) before income taxes

(14,787,044)


(4,027,957)






Provision for income taxes

64,414


61,576






Net income (loss)

(14,851,458)


(4,089,533)






Accretion on mandatorily redeemable preferred stock

-


43,080






Net income (loss) available to common stockholders

(14,851,458)


(4,132,613)






Net income (loss) per common share




Basic

(0.10)


(0.08)

Diluted

(0.10)


(0.08)






Weighted average common shares outstanding




Basic

154,664,865


49,925,913

Diluted

154,664,865


49,925,913



RED HAT, INC.

Consolidated Balance Sheets










May 31,


February 29,




2000


2000






Assets





Current assets:





Cash and cash equivalents


$106,050,164


$242,426,032

Short-term investments


48,314,139


27,460,222

Accounts receivable, net


10,250,190


7,893,936

Inventory


1,343,816


488,977

Prepaid expenses


2,175,166


1,874,973






Total current assets


168,133,475


280,144,140






Property and equipment, net


8,894,542


7,909,103

Goodwill and intangibles, net


87,870,770


58,267,419

Long-term investments


176,260,633


72,354,212

Other assets, net


7,713,678


4,859,958

Total assets


$448,873,098


$423,534,832







Liabilities and stockholders' equity




Current liabilities:




Accounts payable

5,909,724


10,774,546

Royalties payable

40,822


115,117

Accrued expenses

13,078,768


7,571,058

Deferred revenue

12,030,907


11,030,337

Current portion of capital lease obligation

366,315


366,062





Total current liabilities

31,426,536


29,857,120





Capital lease ob igations