Red Hat Reports Fiscal 2007 Second Quarter Results

Raleigh

United States, September 26, 2006

52% revenue growth 6th consecutive quarter adding more than 10,000 new customers 18th consecutive quarter of sequential growth in total revenue

Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal 2007 second quarter.

Total revenue for the quarter was $99.7 million, an increase of 52% from the year-ago quarter and 19% from the prior quarter. Subscription revenue was $84.9 million, up 56% year-over-year and 19% sequentially. JBoss-related revenue of $7 million was at the top of management's previously provided guidance.

Net income for the quarter was $11.0 million or $0.05 per diluted share compared with $16.7 million or $0.09 per diluted share for the second quarter of the last fiscal year. Due to differences in the accounting treatment for taxes and stock compensation expense between fiscal 2006 and 2007, net income is not directly comparable between these periods. After adjusting for these accounting differences, non-GAAP adjusted net income for the second quarter of fiscal 2007 was $23.7 million, or $0.11 per diluted share. This compares to non-GAAP adjusted net income of $17.7 million, or $0.09 per diluted share in the second quarter of the last fiscal year.

At quarter end, the company's total deferred revenue balance was $284.1 million, an increase of $29.4 million, or 12% when compared to the end of the last fiscal quarter.

Other highlights from the quarter included:

  • Quarterly gross margin improved to 84% from 82% in the year-ago period.
  • Red Hat Enterprise Linux OEM revenue grew 90% year-over-year.
  • Total cash and investments as of August 31, 2006 were $1.0 billion.

"The second quarter was one of intense focus on integrating our recent acquisitions in Argentina, Brazil, India and, of course, JBoss," stated Charlie Peters, Executive Vice President and Chief Financial Officer. "We are pleased with the pace and progress of our integration work and believe that results in subsequent quarters will benefit from the investments in employee time and expense made in Q2. Revenue grew nicely and we expect the recent introduction of the Red Hat Application Stack will help continue that trend. We expect operating results and cash flow will improve in the second half of fiscal 2007 since much of the heavy integration work is behind us already."

"Our better than expected revenue and earnings per share speak to the ongoing demand for open source solutions that we continue to see worldwide," stated Dion Cornett, Vice President of Investor Relations. "Moreover, the particular strength we saw in hardware OEM revenue growth stands in stark contrast to the reported weakness experienced by server suppliers this past quarter. We feel this difference highlights the value Red Hat is able to provide that extends beyond mere box counts."

Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables.

About Red Hat, Inc.

Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with offices spanning the globe. CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. 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 applications, management and middleware solutions, including JBoss Enterprise Middleware Suite (JEMS). Red Hat is accelerating the shift to service-oriented architectures (SOA) 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 focus on security and ease of management. Learn more: http://www.redhat.com.

Forward-Looking Statements

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 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.