Red Hat Reports Fiscal First Quarter Results

RALEIGH, NC—June 17, 2004—Red Hat, Inc. (Nasdaq:RHAT), the world's premier open source and Linux provider, today announced financial results for the first quarter ended May 31, 2004.

Revenue for the first quarter of fiscal 2005 was $41.6 million, a sequential increase of 13% compared to $37.0 million in the fourth quarter of fiscal 2004, and a year-over-year increase of 53%.

For the first quarter of fiscal 2005, the company reported net income of $10.7 million, or $0.05 per share. This represents an increase of 113% over net income of $5.0 million, or $0.03 per share, in the prior quarter, and an increase of 603% over net income in the same quarter a year ago.

The company generated $30.1 million, or $0.16 per share, in positive cash flow from operations during the first quarter. The company ended the quarter with a cash and investments balance of $964.4 million.

In the first quarter of fiscal 2005, the company increased its deferred revenue balance to $86.1 million, a sequential increase of $15.2 million, or 21%, as compared to the fourth quarter of fiscal 2004.

Highlights for the first quarter include:

• Sales of subscriptions to Red Hat Enterprise Linux continued to outpace the growth rate of the Intel-based server market, reaching 98,000 subscriptions in the first quarter, a sequential increase of 13%. This is comprised of 75,000 subscriptions sold into the enterprise IT market and 23,000 subscriptions sold into the HPC and hosting markets.
• Renewal rates for subscriptions sold to Red Hat Enterprise Linux in prior years remained strong at approximately 85%.
• Gross margins increased to record levels, with blended gross margins at 80% and gross margins of Enterprise subscription technologies at 93%.
• Operating profit, excluding stock-based compensation, increased to $6.5 million, or 16% of total revenue. This represents a sequential increase of 43% on an adjusted basis and 93% on a GAAP basis, as compared to the fourth quarter of fiscal 2004.

"Red Hat continued to show consistent execution in the first quarter of fiscal 2005, as evidenced by a strong sequential growth in subscription volumes, gross margins, and operating margins", stated Kevin Thompson, Executive Vice President and Chief Financial Officer. "Cash flow from operations once again remained strong, representing 72% of total revenues in the quarter".

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) 754-4439. 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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