Red Hat Reports Fourth Quarter and Fiscal Year 2013 Results

Raleigh

NC, March 27, 2013

RALEIGH, N.C.--(BUSINESS WIRE)-- Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2013.

Total revenue for the quarter was $348 million, an increase of 17% in U.S. dollars from the year ago quarter, or 18% measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $303 million, up 19% in U.S. dollars year-over-year, or 20% measured in constant currency. For the full fiscal year 2013, total revenue was $1.33 billion, up 17% in U.S. dollars year-over-year, or 20% measured in constant currency, and subscription revenue was $1.15 billion, up 19% in U.S. dollars year-over-year, or 22% measured in constant currency.

"For FY13, the growth drivers in our business remained intact, driving record annual revenue, billings proxy and total backlog up 17%, 14% and over 19% year-over-year, respectively. Within total backlog, the value of customer contracts to be billed in the future and not reflected in our financial statements increased to over $280 million, or up over 40%, as customers increased their commitments to Red Hat technologies in the data center," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We continued to see momentum with large deals in Q4, closing a record number of deals in excess of $5 million and $10 million. We now provide solutions to over 90% of Fortune 500 companies as well as tens of thousands of smaller companies. New customer additions coupled with renewing and up-selling our existing customer base enabled us to exceed the billion dollar milestone in both subscription revenue and deferred revenues for the first time."

GAAP operating income for the fourth quarter and the full fiscal year 2013 was $50 million and $201 million, respectively. GAAP operating margin was 14.4% in the fourth quarter and 15.1% for the full year. After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP operating income for the quarter was $84 million, or a 24.0% operating margin. Full year non-GAAP operating income was $326 million and full year non-GAAP operating margin was 24.6%.

GAAP net income for the fourth quarter was $43 million, or $0.22 per diluted share, compared with $35 million, or $0.18 per diluted share, for the prior quarter and $36 million, or $0.18 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the fourth quarter was $70 million, or $0.36 per diluted share, after adjusting for stock compensation and amortization expenses, as detailed in the tables below. This compares to non-GAAP adjusted net income of $57 million, or $0.29 per diluted share in the prior quarter, and $57 million, or $0.29 per diluted share in the year ago quarter. Both the GAAP and non-GAAP results for the fiscal 2013 fourth quarter benefited by approximately $0.03 per share as a result of the retroactive reinstatement in January 2013 of the U.S. research tax credit.

For the full year, GAAP net income was $150 million or $0.77 per diluted share, compared with $147 million or $0.75 per diluted share in the prior year. After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP adjusted net income for the year was $240 million or $1.23 per diluted share, compared to $216 million or $1.10 per diluted share for the previous fiscal year.

Operating cash flow totaled $137 million for the fourth quarter and $465 million for the full year. At the end of the fiscal year, the company's total deferred revenue balance was $1.09 billion, an increase of 15% on a year-over-year basis and 10% sequentially. Cash and investments at February 28, 2013 totaled $1.32 billion after repurchasing approximately 687 thousand shares of common stock in the fourth quarter for approximately $36 million. For fiscal year 2013, Red Hat repurchased approximately 2.3 million shares, or approximately $121 million of common stock.

"During fiscal year 2013, we invested aggressively in new product areas such as storage, cloud computing, management and big data through new internal initiatives and three acquisitions in the second half of the fiscal year. Despite these investments, we generated over 9% year-over-year growth in non-GAAP operating income and 19% full year operating cash flow growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These investments enhance our strategic position in the data center and increase our addressable market."

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $1.49 billion for the fiscal year 2013 compared with $1.31 billion for the prior fiscal year, an increase of 14%. Total backlog for fiscal year 2013 was in excess of $1.37 billion or up over 19% year-over-year. We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements. The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $280 million as of February 28, 2013, compared with in excess of $200 million for the fiscal year ending February 29, 2012, up over 40% year-over-year.

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 a 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: 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; the integration of acquisitions and the ability to market successfully acquired technologies and products; uncertainty and adverse results in litigation and related settlements; 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, Inc. Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                             
                             
          Three Months Ended     Twelve Months Ended
          February 28,     February 29,     February 28,     February 29,
          2013     2012     2013     2012 (1)
Revenue:                          
                             
Subscriptions     $302,783     $255,167     $1,148,341     $965,575
Training and services     45,101     41,844     180,476     167,528
                             
                             
Total subscription, training and services revenue     347,884     297,011     1,328,817     1,133,103
                             
Cost of revenue:                        
                             
Subscriptions     22,400     17,360     80,340     66,237
Training and services     31,203     26,912     120,260     112,311
                             
                             
Total cost of subscription, training and services revenue     53,603     44,272     200,600     178,548
                             
                             
Total gross profit     294,281     252,739     1,128,217     954,555
                             
Operating expense:                        
Sales and marketing     136,314     115,018     514,554     419,635
Research and development     71,248     55,147     263,150     208,662
General and administrative     36,487     34,069     146,333     126,345
Facility exit costs     -     -     3,142     -
                             
Total operating expense     244,049     204,234     927,179     754,642
                             
Income from operations     50,232     48,505     201,038     199,913
Interest income     1,861     2,279     8,245     8,418
Other income (expense), net     (34)     (155)     469     (322)
                             
                             
Income before provision for income taxes     52,059     50,629     209,752     208,009
Provision for income taxes     9,086     14,661     59,548     61,383
                             
Net income     $42,973     $35,968     $150,204     $146,626
                             
Net income per share:                        
Basic         $0.22     $0.19     $0.78     $0.76
Diluted         $0.22     $0.18     $0.77     $0.75
                             
Weighted average shares outstanding:                        
Basic         193,207     193,117     193,147     193,151
Diluted         195,133     195,879     195,804     196,451
                             
                             
(1) Derived from audited financial statements                        

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
             
(In thousands)
             
ASSETS
      February 28,     February 29,
      2013     2012 (1)
      (Unaudited)      
Current assets:        
Cash and cash equivalents $487,084     $549,217
Investments in debt and equity securities 392,381     264,298
Accounts receivable, net 302,942     255,180
Deferred tax assets, net 88,765     69,765
Prepaid expenses 94,421     81,266
Other current assets 3,156     1,629
             
Total current assets 1,368,749     1,221,355
             
Property and equipment, net 141,586     92,065
Goodwill   690,911     591,563
Identifiable intangibles, net 142,243     100,638
Investments in debt securities 438,908     446,838
Other assets, net 31,263     38,640
             
Total assets $2,813,660     $2,491,099
             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:        
Accounts payable and accrued expenses $154,202     $114,078
Deferred revenue 830,486     711,408
Other current obligations 1,024     819
             
Total current liabilities 985,712     826,305
             
Long term deferred revenue 259,466     235,328
Other long term obligations 48,321     30,649
Stockholders' equity:        
Common stock 23     23
Additional paid-in capital 1,802,899     1,709,082
Retained earnings 541,880     391,676
Treasury stock, at cost (816,674)     (696,012)
Accumulated other comprehensive loss (7,967)     (5,952)
             
Total stockholders' equity 1,520,161     1,398,817
             
Total liabilities and stockholders' equity $2,813,660     $2,491,099
             
             
(1) Derived from audited financial statements        

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                           
                           
        Three Months Ended     Twelve Months Ended
        February 28,     February 29,     February 28,     February 29,
        2013     2012     2013     2012 (1)
                           
Cash flows from operating activities:                        
Net income     $42,973     $35,968     $150,204     $146,626
Adjustments to reconcile net income to net cash provided by                        
operating activities:                        
Depreciation and amortization     17,568     13,094     62,341     51,372
Share-based compensation expense     25,954     23,557     98,698     79,267
Deferred income taxes     10,101     9,477     39,849     45,702
Excess tax benefits from share-based payment arrangements     (6,319)     (5,633)     (34,219)     (29,931)
Net amortization of bond premium on available-for-sale debt securities     1,795     1,970     6,889     6,518
Other       (233)     (636)     (2,626)     (1,186)
Changes in operating assets and liabilities net of effects of acquisitions:                        
Accounts receivable     (47,447)     (46,981)     (46,913)     (70,410)
Prepaid expenses     (10,411)     (12,866)     (14,726)     (19,190)
Accounts payable and accrued expenses     (2,612)     (11,060)     40,196     5,986
Deferred revenue     106,059     120,688     162,574     176,855
Other       (541)     433     3,030     274
                           
Net cash provided by operating activities     136,887     128,011     465,297     391,883
                           
Cash flows from investing activities:                        
Purchase of available-for-sale debt securities     (244,341)     (231,958)     (875,428)     (962,974)
Proceeds from sales and maturities of available-for-sale debt securities     153,779     213,318     741,301     791,585
Acquisition of business, net of cash acquired     (104,262)     -     (135,501)     (135,210)
Purchase of other intangible assets     (1,927)     (1,104)     (34,367)     (5,349)
Purchase of property and equipment     (21,119)     (14,974)     (85,671)     (46,269)
Other       353     633     617     (643)
                           
Net cash used in investing activities     (217,517)     (34,085)     (389,049)     (358,860)
                           
Cash flows from financing activities:                        
Excess tax benefits from share-based payment arrangements     6,319     5,633     34,219     29,931
Proceeds from exercise of common stock options     668     1,259     11,478     16,812
Purchase of treasury stock     (35,761)     (76,268)     (120,662)     (133,220)
Payments related to net settlement of employee share-based compensation awards     (4,373)     (4,229)     (49,984)     (36,332)
Payments on other borrowings     (335)     (267)     (1,016)     (1,027)
                           
Net cash used in financing activities     (33,482)     (73,872)     (125,965)     (123,836)
                           
Effect of foreign currency exchange rates on cash and cash equivalents     (4,715)     2,498     (12,416)     (2,600)
Net increase (decrease) in cash and cash equivalents     (118,827)     22,552     (62,133)     (93,413)
Cash and cash equivalents at beginning of the period     605,911     526,665     549,217     642,630
                           
Cash and cash equivalents at end of period     $487,084     $549,217     $487,084     $549,217
                           
                           
(1) Derived from audited financial statements                        

 

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     Twelve Months Ended
      February 28,     February 29,     February 28,     February 29,
      2013     2012     2013     2012
                         
Cost of revenue     $2,656     $2,003     $9,433     $7,880
Sales and marketing     8,944     6,231     32,906     25,060
Research and development     7,606     7,126     29,647     21,570
General and administration     6,748     8,197     26,712     24,757
Total share-based compensation expense     $25,954     $23,557     $98,698     $79,267
                         
                         
Amortization of intangible assets expense included in Consolidated Statements of Operations:
                         
      Three Months Ended     Twelve Months Ended
      February 28,     February 29,     February 28,     February 29,
      2013     2012     2013     2012
                         
Cost of revenue     $2,695     $670     $5,943     $3,533
Sales and marketing     2,144     2,473     8,416     8,348
Research and development     959     940     3,836     4,194
General and administration     1,528     1,058     5,328     3,674
Total amortization of intangible assets expense     $7,326     $5,141     $23,523     $19,749
                         
                         
Facility exit costs included in Consolidated Statements of Operations:
                         
      Three Months Ended     Twelve Months Ended
      February 28,     February 29,     February 28,     February 29,
      2013     2012     2013     2012
                         
Facility exit costs     -     -     $3,142     -
                         
                         
                         
      Three Months Ended     Twelve Months Ended
      February 28,     February 29,     February 28,     February 29,
      2013     2012     2013     2012
                         
GAAP net income     $42,973     $35,968     $150,204     $146,626
                         
Provision for income taxes     9,086     14,661     59,548     61,383
                         
GAAP income before provision for income taxes     $52,059     $50,629     $209,752     $208,009
                         
Add: Non-cash share-based compensation expense     25,954     23,557     98,698     79,267
Add: Amortization of intangible assets     7,326     5,141     23,523     19,749
Add: Facility exit costs     -     -     3,142     -
                         
Non-GAAP adjusted income before provision for income taxes     $85,339     $79,327     $335,115     $307,025
                         
Provision for income taxes (1)     15,213     22,082     95,139     90,603
                         
Non-GAAP adjusted net income (basic and diluted)     $70,126     $57,245     $239,976     $216,422
                         
Non-GAAP adjusted net income per share:                        
Basic     $0.36     $0.30     $1.24     $1.12
Diluted     $0.36     $0.29     $1.23     $1.10
                         
                         
(1) Provision for income taxes:                        
Non-GAAP adjusted net income before income tax provision     $85,339     $79,327     $335,115     $307,025
Estimated annual effective tax rate     17.8%     27.8%     28.4%     30.2%
Non-GAAP provision for income taxes before discrete tax benefit     $15,213     $22,082     $95,139     $92,668
Discrete tax benefit     -     -     -     2,065
Provision for income taxes on Non-GAAP adjusted net income     $15,213     $22,082     $95,139     $90,603
                         

 

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     Twelve Months Ended
      February 28,     February 29,     February 28,       February 29,
      2013     2012     2013       2012
                           
GAAP gross profit     $294,281     $252,739     $1,128,217       $954,555
                           
Add: Non-cash share-based compensation expense     2,656     2,003     9,433       7,880
Add: Amortization of intangible assets     2,695     670     5,943       3,533
                           
Non-GAAP gross profit     $299,632     $255,412     $1,143,593       $965,968
                           
Non-GAAP gross margin     86%     86%     86%       85%
                           
                           
      Three Months Ended     Twelve Months Ended
      February 28,     February 29,     February 28,       February 29,
      2013     2012     2013       2012
                           
GAAP operating expenses     $244,049     $204,234     $927,179       $754,642
                           
Deduct: Non-cash share-based compensation expense     (23,298)     (21,554)     (89,265)       (71,387)
Deduct: Amortization of intangible assets     (4,631)     (4,471)     (17,580)       (16,216)
Deduct: Facility exit costs     -     -     (3,142)       -
                           
Non-GAAP adjusted operating expenses     $216,120     $178,209     $817,192       $667,039
                           
                           
      Three Months Ended     Twelve Months Ended
      February 28,     February 29,     February 28,       February 29,
      2013     2012     2013       2012
                           
GAAP operating income     $50,232     $48,505     $201,038       $199,913
                           
Add: Non-cash share-based compensation expense     25,954     23,557     98,698       79,267
Add: Amortization of intangible assets     7,326     5,141     23,523       19,749
Add: Facility exit costs     -     -     3,142       -
                           
Non-GAAP adjusted operating income     $83,512     $77,203     $326,401       $298,929
                           
Non-GAAP adjusted operating margin     24.0%     26.0%     24.6%       26.4%
                           
                           
      Three Months Ended              
      February 28,     February 29,     Year-Over-Year    
      2013     2012     Growth Rate        
                           
GAAP subscription revenue     $302,783     $255,167     18.7%        
Adjustment for currency impact     2,957     -              
Non-GAAP subscription revenue on a constant currency basis     $305,740     $255,167     19.8%        
                           
GAAP training and services revenue     $45,101     $41,844     7.8%        
Adjustment for currency impact     308     -              
Non-GAAP training and services revenue on a constant currency basis     $45,409     $41,844     8.5%        
                           
GAAP total subscription, training and services revenue     $347,884     $297,011     17.1%        
Adjustment for currency impact     3,265     -              
Non-GAAP total subscription, training and services revenue on a constant currency basis     $351,149     $297,011     18.2%        
                           
                           
      Twelve Months Ended              
      February 28,     February 29,     Year-Over-Year        
      2013     2012     Growth Rate        
                           
GAAP subscription revenue     $1,148,341     $965,575     18.9%        
Adjustment for currency impact     28,220     -              
Non-GAAP subscription revenue on a constant currency basis     $1,176,561     $965,575     21.9%        
                           
GAAP training and services revenue     $180,476     $167,528     7.7%        
Adjustment for currency impact     4,667     -              
Non-GAAP training and services revenue on a constant currency basis     $185,143     $167,528     10.5%        
                           
GAAP total subscription, training and services revenue     $1,328,817     $1,133,103     17.3%        
Adjustment for currency impact     32,887     -              
Non-GAAP total subscription, training and services revenue on a constant currency basis     $1,361,704     $1,133,103     20.2%        

 

Red Hat, Inc.
Media Contact:
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com