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Press release

Red Hat Reports Fiscal First Quarter Results

Revenue Up 46% From Prior Year, Record Cash Flow From Operations

RALEIGH, N.C.

Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal first quarter ended May 31, 2005.

Total revenue for the quarter was $60.8 million, a year-over-year increase of 46% and a sequential increase of 6%. Enterprise subscription revenue was $48.7 million, an increase of 63% year-over-year and 7% sequentially.

For the first quarter of fiscal 2006, the company reported net income of $12.4 million or $0.07 per diluted share, up from $11.8 million or $0.06 per diluted share in the prior quarter.

The company reported $36.6 million in cash flow from operations during the first quarter, a 20% increase from the prior quarter and the highest level in the company's history.

After repurchasing $5.1 million of common stock and $10.0 million face value of debt during the quarter, cash and investments totaled $951.5 million at the end of May 2005. These transactions were completed in conjunction with the expanded repurchase program approved by the company's board of directors in March of this year.

At quarter end, the company's total deferred revenue balance was $157.9 million, an increase of $20.6 million from the prior quarter and $70.1 million from the year ago period.

"Our results for the first quarter represent a solid start to the fiscal year," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We continue to experience strong customer demand. This quarter's record-level billings speak to the continued momentum we are experiencing globally for our open source solutions."

"From an operational standpoint," Peters said, "the process improvements we implemented last quarter began to pay off earlier than we expected in terms of shorter cash collection cycles and improved cash flow from operations. Thus, despite some negative impact from recent movements in foreign currency, we remain confident in the long-term cash flow capabilities of the company. Our first quarter performance was a step forward in our stated goal of significantly growing our cash flow run rate over the course of the fiscal year."

Other highlights from the quarter included:

  • DSO improved by 7 days, from 64 days in the prior quarter to 57 days in the first quarter.
  • Channel partner bookings increased to 60% of orders versus 56% last quarter and is approaching the company's previously stated long-term goal of 70%.
  • The company released Red Hat Directory Server, providing the identity management market its first enterprise class open source solution.

Dion Cornett, Red Hat's Vice President of Investor Relations, stated, "We are very pleased with the momentum we continue to see in our business and the open source market place. We remain committed to our customers, partners, employees and the open source community as a whole. And as this quarter's string of new records indicates, our partners and customers remain committed to Red Hat."

See the earnings tables.

About Red Hat, Inc.

Red Hat, the world's leading open source and Linux provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. 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

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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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.