Red Hat Reports Fiscal First Quarter Results

RALEIGH, NC—June 17, 2003—Red Hat, Inc. (Nasdaq:RHAT), the world's premier open source and Linux provider, today reported financial results for its first quarter of fiscal year 2004. The company's fiscal first quarter ended on May 31, 2003. These results are provided in full GAAP format.

In the first quarter of fiscal 2004, Red Hat achieved revenue of $27.2 million, a sequential increase of 5% compared to $25.9 million in the fourth quarter of fiscal 2003, and a year-over-year increase of 39%.

For the first quarter of fiscal 2004, the company achieved net income of $1.5 million, or $0.01 per share. This compares to a net loss of $273,000, or break-even per share, in the prior quarter, and a net loss of $4.6 million, or $0.03 per share, in the same quarter a year ago.

The company generated $5.5 million in positive cash flows from operations during the first quarter, which represents its fourth consecutive quarter of positive cash flows from operations. The company ended the first quarter with a cash and investments balance of $300 million, a sequential increase of $7.7 million and a year-over-year increase of $13.5 million.

For the first quarter of fiscal 2004, the company increased its deferred revenue balance to $24.1 million, an increase of $6.3 million, or 36% as compared to the fourth quarter of fiscal 2003, and an increase of $14.8 million or 159% as compared to the same prior year quarter.

The company reported a net operating loss of $1.1 million, compared to a net operating loss of $2.4 million in the prior quarter and a net operating loss of $7.2 million in the first quarter of the prior year.

• First quarter sales of annual subscriptions for the Red Hat Enterprise Linux family of technologies increased sequentially by 2,000, or 10%, to 23,500 subscriptions.
  
  
• Subscription revenues from Enterprise Technologies grew 14% sequentially and 104% year-over-year.
  
  
• Blended gross margins remained strong at 68%, while gross margins of Enterprise subscription technologies, including retail revenues, also remained strong at 82%.
  
  
• Continued scaling of the business model, as the sequential reduction in the company's operating loss of $1.3 million equated to the sequential increase in revenues.
  
  

"Red Hat continues to show strong operating performance, including solid growth in cash flows, deferred revenues, and net income, which translates into continued leverage of our business model", stated Kevin Thompson, Executive Vice President and Chief Financial Officer.

About Red Hat, Inc.
Red Hat is the world's premier open source and Linux provider. Red Hat is headquartered in Raleigh, N.C. and has offices worldwide. For investor inquiries, contact Gabriel Szulik at Red Hat, (919) 754-3700, x44439. Please visit Red Hat on the Web at 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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