Red Hat Reports Third Quarter Results

Raleigh

December 20, 2012
  • Third quarter revenue of $344 million, up 18% year-over-year
  • Third quarter subscription revenue of $294 million, up 19% year-over-year
  • Third quarter total deferred revenue of $988 million, up 21% year-over-year

RALEIGH, N.C.-- Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2013 third quarter ended November 30, 2012.

Total revenue for the quarter was $343.6 million, an increase of 18% in U.S. dollars from the year ago quarter, or 21% measured in constant currency, as detailed in the tables below. Subscription revenue for the quarter was $294.2 million, up 19% in U.S. dollars year-over-year, or 22% measured in constant currency, as detailed in the tables below.

"Strong execution, industry leading solutions and our ability to deliver a compelling ROI to our customers, all contributed to continued momentum and strong third quarter revenue growth in the face of a challenging global economic environment. Red Hat is benefiting from our position as a trusted vendor for IT," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Since October of last year we have completed three acquisitions, and are announcing a fourth today to expand our portfolio of open source solutions and enlarge our addressable market. As our enterprise customers move to open, hybrid cloud architectures, we are addressing their needs with a clear roadmap based on industry-leading open source technologies."

GAAP operating income for the third quarter was $49.9 million, down 7% year-over-year, due largely to acquisition-related costs, including stock compensation and amortization. GAAP operating margin was 14.5%. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the third quarter was $82.5 million, up 5% year-over-year. Non-GAAP operating margin was 24.0%.

Net income for the quarter was $34.8 million, or $0.18 per diluted share, compared with $38.2 million, or $0.19 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP net income for the quarter was $56.9 million, or $0.29 per diluted share, as compared to $55.7 million, or $0.28 per diluted share, in the year ago quarter.

Operating cash flow was $100.2 million for the third quarter, as compared to $96.6 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $987.7 million, an increase of 21% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2012 were $1.35 billion.

"While we continue to increase investments in new technologies and growth initiatives, our solid performance is driving steady profitability and strong operating cash flow. In Q3, we used our strong balance sheet and cash flow to repurchase approximately $52 million of common stock, in addition to closing the FuseSource acquisition which enhances our offering in the fast-growing Application Integration software space." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We have continued this focused investment in key growth opportunities with the announcement of an agreement to acquire ManageIQ, Inc. ManageIQ positions us deeper in the cloud management market which analysts estimate will be a $3 billion market by 2016."

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 has ended.

About Red Hat, Inc.
Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As the connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. Learn more at 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 delays or reductions in information technology spending; the effects of industry consolidation; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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; the ability to deliver and stimulate demand for new products and technological innovations on a timely basis; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; fluctuations in exchange rates; 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 and political conditions, governmental and public policy changes and the impact of natural disasters such as earthquakes and floods. 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 this press release.

Red Hat and JBoss are trademarks of Red Hat, Inc., registered in the U.S. and other countries. Linux® is the registered trademark of Linus Torvalds in the U.S. and other countries.

 

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,
                2012   2011   2012   2011
Revenue:                  
                             
  Subscriptions   $294,186   $246,538   $845,557   $710,408
  Training and services   49,420   43,488   135,375   125,684
                             
                             
    Total subscription, training and services revenue   343,606   290,026   980,932   836,092
                             
Cost of revenue:                
                             
  Subscriptions   21,153   17,041   57,939   48,876
  Training and services   31,965   28,148   89,056   85,399
                             
                             
    Total cost of subscription, training and services revenue   53,118   45,189   146,995   134,275
                             
                             
  Total gross profit   290,488   244,837   833,937   701,817
                             
Operating expense:                
  Sales and marketing   133,792   107,561   378,240   304,617
  Research and development   68,655   53,739   191,901   153,515
  General and administrative   38,122   29,965   109,847   92,277
  Facility exit costs   -   -   3,142   -
                             
    Total operating expense   240,569   191,265   683,130   550,409
                             
Income from operations   49,919   53,572   150,807   151,408
  Interest income   1,936   2,075   6,384   6,138
  Other income (expense), net   (730)   (227)   502   (167)
                             
                             
Income before provision for income taxes   51,125   55,420   157,693   157,379
Provision for income taxes   16,360   17,180   50,462   46,722
                             
Net income   $34,765   $38,240   $107,231   $110,657
                             
Net income per share:                
  Basic       $0.18   $0.20   $0.56   $0.57
  Diluted       $0.18   $0.19   $0.55   $0.56
                             
Weighted average shares outstanding:                
  Basic       193,374   193,393   193,127   193,162
  Diluted       195,666   196,468   195,898   196,493

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
                     
(In thousands)
                     
ASSETS
                November 30,   February 29,
                2012   2012 (1)
                (Unaudited)    
Current assets:      
  Cash and cash equivalents $605,911   $549,217
  Investments in debt and equity securities 280,433   264,298
  Accounts receivable, net 254,787   255,180
  Deferred tax assets, net 63,342   69,765
  Prepaid expenses 83,809   81,266
  Other current assets 2,010   1,629
                     
      Total current assets 1,290,292   1,221,355
                     
  Property and equipment, net 128,743   92,065
  Goodwill     608,149   591,563
  Identifiable intangibles, net 130,025   100,638
  Investments in debt securities 463,553   446,838
  Other assets, net 41,137   38,640
                     
      Total assets $2,661,899   $2,491,099
                     
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:      
  Accounts payable and accrued expenses $155,768   $114,078
  Deferred revenue 735,580   711,408
  Other current obligations 1,082   819
                     
      Total current liabilities 892,430   826,305
                     
  Long term deferred revenue 252,152   235,328
  Other long term obligations 36,095   30,649
Stockholders' equity:      
  Common stock 23   23
  Additional paid-in capital 1,770,525   1,709,082
  Retained earnings 498,907   391,676
  Treasury stock, at cost (780,912)   (696,012)
  Accumulated other comprehensive loss (7,321)   (5,952)
                     
      Total stockholders' equity 1,481,222   1,398,817
                     
      Total liabilities and stockholders' equity $2,661,899   $2,491,099
                     
                     
      (1) Derived from audited financial statements      

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2012   2011   2012   2011
                           
Cash flows from operating activities:              
Net income $34,765   $38,240   $107,231   $110,657
Adjustments to reconcile net income to net cash provided by              
operating activities:              
Depreciation and amortization 16,126   12,392   44,773   38,278
Share-based compensation expense 26,678   20,770   72,743   55,710
Deferred income taxes 6,686   17,015   29,749   36,225
Excess tax benefits from share-based payment arrangements (8,100)   (7,626)   (27,900)   (24,298)
Other (552)   (233)   (2,393)   (550)
Changes in operating assets and liabilities net of effects of acquisitions:              
Accounts receivable (35,291)   (35,014)   534   (23,429)
Prepaid expenses 2,652   (3,096)   (4,314)   (6,324)
Accounts payable and accrued expenses 21,554   22,206   47,903   21,595
Deferred revenue 35,207   32,046   56,515   56,167
Other       431   (144)   3,572   (159)
                           
Net cash provided by operating activities 100,156   96,556   328,413   263,872
                           
Cash flows from investing activities:              
Purchase of available-for-sale debt securities (123,318)   (329,730)   (631,087)   (731,016)
Proceeds from sales and maturities of available-for-sale debt securities 169,743   196,991   587,522   578,267
Acquisition of business, net of cash acquired (21,188)   (135,210)   (31,239)   (135,210)
Purchase of other intangible assets (5,577)   (643)   (32,440)   (4,245)
Purchase of property and equipment (28,309)   (11,115)   (64,552)   (31,294)
Other       (66)   (1,622)   264   (1,276)
                           
    Net cash used in investing activities (8,715)   (281,329)   (171,532)   (324,774)
                           
Cash flows from financing activities:              
Excess tax benefits from share-based payment arrangements 8,100   7,626   27,900   24,298
Proceeds from exercise of common stock options 4,294   7,139   10,810   15,552
Purchase of treasury stock (52,018)   -   (84,900)   (56,952)
Payments related to net settlement of employee share-based compensation awards (22,924)   (20,118)   (45,612)   (32,103)
Payments on other borrowings (205)   (70)   (682)   (759)
                           
Net cash used in financing activities (62,753)   (5,423)   (92,484)   (49,964)
                           
Effect of foreign currency exchange rates on cash and cash equivalents 5,647   (20,597)   (7,703)   (5,099)
Net increase (decrease) in cash and cash equivalents 34,335   (210,793)   56,694   (115,965)
Cash and cash equivalents at beginning of the period 571,576   737,458   549,217   642,630
                           
Cash and cash equivalents at end of period $605,911   $526,665   $605,911   $526,665

 

RED HAT, INC.
RECONCILIATION OF CERTAIN 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,
  2012   2011   2012   2011
               
Cost of revenue $2,444   $2,245   $6,777   $5,877
Sales and marketing 8,875   7,157   23,962   18,829
Research and development 7,935   5,368   22,040   14,445
General and administration 7,424   6,000   19,964   16,559
Total share-based compensation expense $26,678   $20,770   $72,743   $55,710
               
               
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,
  2012   2011   2012   2011
               
Cost of revenue $1,433   $669   $3,252   $2,864
Sales and marketing 2,076   1,957   6,272   5,874
Research and development 959   940   2,877   3,254
General and administration 1,476   905   3,800   2,616
Total amortization of intangible assets expense $5,944   $4,471   $16,201   $14,608
               
               
Facility exit costs included in Consolidated Statements of Operations:            
               
  Three Months Ended   Nine Months Ended
  November 30,   November 30,   November 30,   November 30,
  2012   2011   2012   2011
               
Facility exit costs -   -   $3,142   -
               
               
               
  Three Months Ended   Nine Months Ended
  November 30,   November 30,   November 30,   November 30,
  2012   2011   2012   2011
               
GAAP net income $34,765   $38,240   $107,231   $110,657
               
Provision for income taxes 16,360   17,180   50,462   46,722
               
GAAP income before provision for income taxes $51,125   $55,420   $157,693   $157,379
               
Add: Non-cash share-based compensation expense 26,678   20,770   72,743   55,710
Add: Amortization of intangible assets 5,944   4,471   16,201   14,608
Add: Facility exit costs -   -   3,142   -
               
Non-GAAP adjusted income before provision for income taxes $83,747   $80,661   $249,779   $227,697
               
Provision for income taxes (1) 26,799   25,005   79,929   68,521
               
Non-GAAP adjusted net income (basic and diluted) $56,948   $55,656   $169,850   $159,176
               
Non-GAAP adjusted net income per share:              
Basic $0.29   $0.29   $0.88   $0.82
Diluted $0.29   $0.28   $0.87   $0.81
               
               
(1) Provision for income taxes:              
Non-GAAP adjusted net income before income tax provision $83,747   $80,661   $249,779   $227,697
Estimated annual effective tax rate 32.0%   31.0%   32.0%   31.0%
Non-GAAP provision for income taxes before discrete tax benefit $26,799   $25,005   $79,929   $70,586
Discrete tax benefit -   -   -   2,065
Provision for income taxes on Non-GAAP adjusted net income $26,799   $25,005   $79,929   $68,521

 

RED HAT, INC.
RECONCILIATION OF CERTAIN 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,
              2012   2011   2012   2011
                           
GAAP gross profit $290,488   $244,837   $833,937   $701,817
                           
Add: Non-cash share-based compensation expense 2,444   2,245   6,777   5,877
Add: Amortization of intangible assets 1,433   669   3,252   2,864
                           
Non-GAAP gross profit $294,365   $247,751   $843,966   $710,558
                           
Non-GAAP gross margin 86%   85%   86%   85%
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2012   2011   2012   2011
                           
GAAP operating expenses $240,569   $191,265   $683,130   $550,409
                           
Deduct: Non-cash share-based compensation expense (24,234)   (18,525)   (65,966)   (49,833)
Deduct: Amortization of intangible assets (4,511)   (3,802)   (12,949)   (11,744)
Deduct: Facility exit costs -   -   (3,142)   -
                           
Non-GAAP adjusted operating expenses $211,824   $168,938   $601,073   $488,832
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2012   2011   2012   2011
                           
GAAP operating income $49,919   $53,572   $150,807   $151,408
                           
Add: Non-cash share-based compensation expense 26,678   20,770   72,743   55,710
Add: Amortization of intangible assets 5,944   4,471   16,201   14,608
Add: Facility exit costs -   -   3,142   -
                           
Non-GAAP adjusted operating income $82,541   $78,813   $242,893   $221,726
                           
Non-GAAP adjusted operating margin 24.0%   27.2%   24.8%   26.5%
                           
                           
              Three Months Ended        
              November 30,   November 30,   Year-Over-Year    
              2012   2011   Growth Rate    
                           
GAAP subscription revenue $294,186   $246,538   19.3%    
Adjustment for currency impact 5,647   -        
Non-GAAP subscription revenue on a constant currency basis $299,833   $246,538   21.6%    
                           
GAAP training and services revenue $49,420   $43,488   13.6%    
Adjustment for currency impact 1,024   -        
Non-GAAP training and services revenue on a constant currency basis $50,444   $43,488   16.0%    
                           
GAAP total subscription, training and services revenue $343,606   $290,026   18.5%    
Adjustment for currency impact 6,671   -        
Non-GAAP total subscription, training and services revenue on a constant currency basis $350,277   $290,026   20.8%