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Press release

Red Hat Reports Fiscal Fourth Quarter and Fiscal Year 2006 Results

RALEIGH, N.C
  • Annual Subscription Revenue up 53% from prior year
  • Quarterly cash flow from operations up 64% from prior year
  • Quarterly operating income up 165% year-over-year

Red Hat, Inc. (NASDAQ:RHAT - News), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2006. Total revenue for the quarter was $78.7 million, an increase of 37% from the year ago quarter and 8% from the prior quarter. Subscription revenue was $66.7 million, up 44% year-over-year and 11% sequentially. For the full year, total revenue was $278.3 million, an increase of 42% over fiscal 2005 revenue, and subscription revenue was $230.4 million, up 53% from the prior year.

The company reported operating income of $19.8 million for the quarter and $58.1 million for the year, representing increases of 165% over the fourth quarter of fiscal 2005 and 116% over the full fiscal year 2005. Net income for the quarter was $27.3 million, up 131% year-over-year and 18% sequentially. For the full year, net income rose 75% to $79.7 million over the prior fiscal year. Earnings per diluted share more than doubled to $.13 for the fourth quarter, versus $.06 in the year ago quarter.

At year end, the company's total deferred revenue balance was $223.5 million, an increase of 63% on a year-over-year basis and 12% sequentially.

Other highlights from the quarter included:

  • Red Hat was rated the number one technology vendor for value and reliability in a Ziff Davis survey of over 1,000 CIO's and IT executives, for the second year in a row.
  • Quarterly gross margin improved to 84% from 81% in the year ago period.
  • Quarterly operating margin improved to 25% versus 13% in the year ago period.
  • Total cash, cash equivalents, and investments as of February 28, 2006 were $1.1 billion.

"This past year's results affirmed our ability to scale for growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Margins continued to expand even as we built out our infrastructure through investments in headcount and systems. Moreover, our cash flow from operations improved significantly in FY 2006."

"We are pleased to report continued market momentum," stated Dion Cornett, Vice President Investor Relations. "Fiscal year 2006 was a great year in that we outgrew leading industry analysts' estimates for Linux market growth and substantially out paced rivals, thus implying continued market share gains. The positive interaction between our community, ecosystem, and customers continues to extend our leadership position as the world's largest provider of open source solutions."

View the earnings tables.

About Red Hat, Inc.

Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. The most trusted name in open source, CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com

Forward-Looking Statements

Any statements in this press release about future expectations, plans and prospects for the Company, including statements containing the words "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the factors discussed in our most recent Quarterly Report on Form 10-Q filed with the SEC (a copy of which may be accessed through the SEC's website at http://www.sec.gov), 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 and the viability of the Internet. In addition, 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 the press release.

About Red Hat

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; 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.