Red Hat Delivers Record Revenue, Cash Flows From Operations, and Operating Income in Third Quarter

Raleigh

United States, December 18, 2003

Growth in Enterprise Subscription volumes accelerates to 33,000 new subscriptions, drives 40% sequential growth in deferred revenue.

Red Hat, Inc. (Nasdaq:RHAT), the world's premier open source and Linux provider, today reported financial results for its third quarter of fiscal year 2004.

In the third quarter of fiscal 2004, Red Hat reported revenue of $33.1 million, a sequential increase of 15% compared to $28.8 million in the second quarter of fiscal 2004, and a year-over-year increase of 36%.

The company also reported net income of $4.1 million, or $0.02 per share. This compares to a net income of $3.3 million, or $0.02 per share, in the prior quarter, and a net income of $214,000, or break-even per share, in the same quarter a year ago.

The company generated $12.0 million, or $0.07 per share, in positive cash flow from operations during the second quarter, bringing positive cash flows from operations to $27.9 million for the nine months ended November 30, 2003. The company ended the third quarter with a cash and investments balance of $329 million, a sequential increase of $22 million and a year-over-year increase of $42 million.

The company reported a net operating profit of $1.5 million, compared to a net operating profit of $240,000 in the prior quarter and a net operating loss of $2.9 million in the third quarter of the prior year. Excluding stock-based compensation and amortization of intangibles, operating margin was 6.2% in the quarter, up from 2.9% in the previous quarter.

Highlights for the third quarter include:

  • Third quarter sales of annual subscriptions for the Red Hat Enterprise Linux family of technologies increased sequentially by 7,000 subscriptions, or 27%, to approximately 33,000 subscriptions.
  • Renewal rates for Red Hat Enterprise Linux approximated 90% for the second consecutive quarter.
  • Deferred revenue increased 40% sequentially, to $42.3 million.
  • Gross margins remained strong, with blended gross margins at 72%, and gross margins of Enterprise subscriptions remaining constant at 88%.

"Our revenue growth accelerated in the third quarter, which translated to increased operating income and cash flows from operations ," said Kevin Thompson, Red Hat Executive Vice President and Chief Financial Officer. "The subscription revenue model has developed sufficient maturity to enable us to drive consistent sequential increases in quarterly revenue."

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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

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