Red Hat Reports Fiscal Fourth Quarter and Year End Results

RALEIGH, NC—March 23, 2004—Red Hat, Inc. (Nasdaq:RHAT), the world's premier open source and Linux provider, today reported financial results for the fourth quarter and fiscal year ended February 29, 2004.

Revenue for the fourth quarter of fiscal 2004 was $37.0 million, a sequential increase of 11% compared to $33.1 million in the third quarter of fiscal 2004, and a year-over-year increase of 43%.

For the fourth quarter of fiscal 2004, the company reported net income of $5.0 million, or $0.03 per share. This compares to a net income of $4.1 million, or $0.02 per share, in the prior quarter, and break-even results in the same quarter a year ago.

The company generated $32.2 million, or $0.17 per share, in positive cash flow from operations during the fourth quarter, and a total of $61 million, or $0.33 per share, in positive cash flow from operations for the fiscal year ended February 29, 2004. The company ended the year with a cash balance of $941 million, an increase of $649 million as compared to the balance at the end of the prior fiscal year.

In the fourth quarter of fiscal 2004, the company increased its deferred revenue balance to $70.8 million, a sequential increase of $28.6 million, or 68%, as compared to the third quarter of fiscal 2004.

Highlights for the fourth quarter include:

• Fourth quarter sales of subscriptions for Red Hat Enterprise Linux technologies increased by 87,000 new subscriptions, comprised of 61,000 subscriptions sold into the enterprise IT market and 26,000 subscriptions sold into the HPC and hosting markets.
• Renewal rates for sales of Red Hat Enterprise Linux remained strong at approximately 90%.
• Gross margins increased to record levels, with blended gross margins at 76% and gross margins of Enterprise subscription technologies at 91%.
• Operating profit, before stock-based compensation, increased to $4.6 million, or 12% of total revenue.

For the fiscal year ended February 29, 2004, the company reported revenues of $126.1 million, an increase of 39% as compared to fiscal 2003 revenues of $90.9 million. The company reported net income of $14 million for fiscal 2004, or $0.08 per share, compared to a net loss of $6.6 million, or a loss of $0.04 per share, for fiscal 2003. For the fiscal year ended on February 29, 2004, the company reported over 160,000 cumulative sales of Red Hat Enterprise Linux technologies.

"For Red Hat, fiscal 2004 was a year marked by great execution, as we delivered strong growth in revenues, cash flows, and profitability", stated Kevin Thompson, Executive Vice President and Chief Financial Officer. "The growth rate in the adoption of Red Hat Enterprise Linux has exceeded our expectations to date and we are positive on the outlook for fiscal 2005".

See the earnings tables.

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. More information about Red Hat is available 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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