Strong Revenue Growth and Positive Cash Flows Highlight Red Hat's Second Quarter Results

Raleigh

United States, September 17, 2002

13% growth in Enterprise revenues evidence Red Hat's execution of its Enterprise strategy

In the second quarter of fiscal 2003, Red Hat achieved revenue of $21.2 million, a sequential increase of 9% compared to $19.5 million in the first quarter of fiscal 2003.

On a pro-forma basis, for the second quarter of fiscal 2003 the company reported a net loss of $471,000, or break-even per share, and on a GAAP basis reported a net loss of $1.7 million, or $0.01 per share. This compares to an adjusted net loss of $829,000, or break-even per share, in the prior quarter, and a GAAP net loss of $4.6 million, or $0.03 per share in the prior quarter.

Enterprise revenues jumped by 13%, to $19.6 million, compared to $17.4 million in the prior quarter, and by 40% compared to the same quarter a year ago. In its first full quarter of release, Red Hat Advanced Server has gained support of all the leading hardware and software providers, and has quickly become established as the Linux platform for the Enterprise. Gross margins remained strong at 67% on Enterprise revenues and 64% on total revenues during the second quarter of fiscal 2003.

The company generated positive cash flows of $2 million in the second quarter of fiscal 2003, including $582,000 in positive cash flows from operations, to a total cash and investments balance of $288.5 million at August 31, 2002.

In future quarters, Red Hat intends to only report GAAP results.

"Strong operating performance, including revenue growth and positive cash flows, delivers evidence that Linux in the Enterprise is for real, and Red Hat is positioned to lead the market", stated Kevin Thompson, Executive Vice President and Chief Financial Officer.

See the release complete with tables.

About Red Hat, Inc.

Red Hat, the world's leading open source and Linux 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 operating system software along with middleware, applications and management solutions. 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 focus on security and ease of management. Learn more: http://www.redhat.com

Forward-Looking Statements

Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov.

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