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Press release

Red Hat, Inc. Reports Strong Revenue Gains In Second Fiscal Quarter

DURHAM

Red Hat, Inc. (Nasdaq: RHAT), a leading provider and developer of open source software, services and information, today reported that its revenues totaled $4.4 million in its second fiscal quarter, which ended on August 31, 1999. This is a 95% increase over revenues of $2.3 million for the same period a year earlier.

In the six months ending August 31, 1999, Red Hat's revenues were $7.2 million, 89% higher than revenues of $3.9 million in the first half of the preceding fiscal year. The net loss was $5.2 million, or $0.18 per common share, in the current fiscal year's first six months, as compared to $3.1 million or $0.09 per common share for the same period in the prior fiscal year. Had the Company's initial public offering been completed at March 1, 1999, the Company's weighted average common shares outstanding for the six months ended August 31, 1999 would have been 66,532,172, which would have resulted in a net loss per common share of $0.08 for such period.

"Our performance during the second quarter illustrates our ability to successfully execute our business plan and the increasingly rapid adoption of open source software around the world," said Bob Young, chairman and chief executive officer. "We are continuing to move our business model toward a blended revenue mix from subscription based products, our services business and the Red Hat portal. At the same time, we're demonstrating that Red Hat has the ability to drive the growth of the open source market. As more and more enterprise customers become part of the open source community, demand for the support and services we provide naturally increases globally."

"We're responding to the growing demand for open source software and services by extending the Red Hat organization to more and more parts of the world. During the second quarter we opened an office in Japan and appointed a general manager for our European operation. We are moving quickly to staff these offices with sales, marketing, services and engineering personnel and plan to begin providing 24/7 support in these important growth markets next month. These international offices follow the opening of our West Coast office last summer, increasing our presence around the globe."

The company's shift to a subscription model in providing products to its customers has been well received, Mr. Young said, with product revenue providing 74% of total revenue in the second quarter. "In addition, we doubled the number of Red Hat's enterprise customers to 34 this quarter compared to 17 for the first quarter of this fiscal year, reflecting the accelerating rate at which the open source approach is being adopted by corporations both in the U.S. and around the world."

"We are driving the growth of open source software, a method of developing software that gives control of the technology to the customer," Mr. Young said. "Among the major reasons for this growth are the dependability of Red Hat's products, the growing recognition and power of the Red Hat brand, and our market leadership position. We believe that Red Hat is becoming the reference point for open source usage. This is apparent in the stature of the companies with which we have formed alliances - companies such as Compaq, Dell, IBM and Oracle - and the growing number of enterprise applications."

Highlights of the second quarter include:

  • A revenue-sharing service agreement with IBM Global Services in which we work with IBM to provide technical support to customers of Red Hat Linux.
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  • A similar agreement in which we work with Compaq to provide technical support to customers of Red Hat Linux.
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  • A third such agreement in which Siemens offers products, technical support, and training services related to Red Hat Linux in Germany.
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  • A contract with Global Knowledge under which it has become a training partner of Red Hat, providing its customers with both training and certification in Red Hat Linux.
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  • A contract that makes Collective Technologies a partner of Red Hat in its consulting activities.
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  • The acquisition of certain assets, including a number of engineering employees, of delix GmbH of Germany, developers of DLD Linux with significant open source expertise.
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  • The acquisition of certain assets of Atomic Vision, a Web site development company, the addition of a number of former Atomic Vision employees and subsequent improvements to the redhat.com Web site.
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  • Increased acceptance of the redhat.com Web site as a leading destination site for communications within the growing open source community. The site had 33.3 million page views in the second quarter and has begun carrying paid advertising.
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"This is a time of tremendous opportunity for Red Hat - a time for spreading the use of our products and services as rapidly as possible," Mr. Young said. "We are pursuing our opportunities both through partners and by building up our own ability to reach and serve customers directly. Using both approaches simultaneously enables us to get the maximum use of our resources, and also gives full scope to the experience skills of our seasoned management team."

Investor Contact:

John Heilshorn

Jody Burfening

Lippert/Heilshorn & Associates

212-838-3777

john@lhai.com

jody@lhai.com

Company Contact:

Manoj George

Chief Financial Officer

Red Hat, Inc.

919-547-0012 x238

manoj@redhat.com

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

LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.

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.