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Press release

Red Hat First Quarter Revenues Climbed 95% to $16 Million

Continued Execution Towards Profitability with Significant Gross Margin Improvement

RALEIGH, N.C

 

Red Hat, Inc. (Nasdaq: RHAT), the leader in open source Internet infrastructure solutions, today reported revenue of $16.0 million for the first quarter ended May 31, 2000, a 95% increase over revenue of $8.2 million for the first quarter last year, and 22% higher than fourth quarter 1999 revenue of $13.1 million. Gross margins increased to 54.0% for the quarter, a 6.6 percentage point improvement over the prior quarter.

Adjusting for non-cash, merger, acquisition and other expenses, the Company reported a net loss for the first quarter of fiscal 2001 of $2.5 million, or $0.02 per share, compared to an adjusted net loss for the first quarter of fiscal 2000 of $3.8 million, or $0.08 per share. On a reported basis, the net loss was $14.9 million, or $0.10 per share, compared with a net loss of $4.1 million, or $0.08 per share, for the first quarter of fiscal 2000.

Commenting on the results, Matthew Szulik, president and CEO of Red Hat, Inc., said, "Q1 performance represents continued execution against our plan to double revenue and become profitable in calendar 2001 while leveraging our acquisitions to enter new markets and create new revenue streams."

Highlights for the first quarter include:

  • Unveiled the redhat.com Marketplace, a single, comprehensive Web destination to learn about and purchase products for open source Internet computing initiatives. Participating vendors include Dell, Compaq, IBM, Oracle, Rackspace.com and Zonetrader.com.


  •  
  • Launched "What Can Red Hat Do for Me," a service which delivers users a made-to-order report featuring the information, products and services that are right for that customer's needs.


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  • Launched "Success Stories," which details the business needs, deployment and cost savings of Red Hat Linux for Internet Infrastructure solutions.


  •  
  • Launched the Red Hat E-Learning Curriculum, a collaboration with DigitalThink, a leader in e-learning solutions, to extend Red Hat Linux training and certification to the Web.


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  • Extended enterprise-level support to businesses of all sizes with a new per-server support program, a subscription-based, 24x7 annual service that has the flexibility to add systems at increasingly lower costs per system as the number of servers or desktops grows.


  •  
  • Extended the relationship with IBM. IBM is pre-loading Red Hat Linux 6.2 on its Netfinity servers for which Red Hat is providing level-three support.


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  • Additionally, IBM is offering the Red Hat Certified Engineer program at IBM training centers around the world.


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  • Expanded the partnership with Dell by collaborating on the development of the Dell PowerApp.web appliance server, which is powered by the Red Hat Linux 6.2 operating system. Red Hat is also providing support to Dell customers for the PowerApp.web appliance server.


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  • Expanded the relationship with Compaq to provide bundled and pre-loaded Red Hat Linux 6.2 on Compaq servers, AlphaStations and select Deskpro PC models.


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  • Released pre-production tools and software for the forthcoming Intel Itanium processor platform targeting high-end servers and workstations. Launched eCos 1.3, the latest version of Red Hat's Open Source, configurable, application-specific operating system for embedded systems. eCos provides manufacturers of post-PC devices with the expertise to bring networking applications to embedded devices.


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  • Distributing the Red Hat Embedded DevKit and support package, providing software developers with everything needed to create embedded Linux applications on a wide spectrum of pervasive computing platforms.


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  • Introduced the Enterprise Channel Partner Program for the largest resellers and network and systems integrators that service some of the world's most successful enterprise companies.


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  • Formed Red Hat Ventures, a venture funding and strategic business relationships division to accelerate the breadth of tools, services and technologies available to Red Hat customers.


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RED HAT, INC.

Consolidated Statements of Operations

 

 

 

 

 

 

 

 

Three months ended

   

May 31,

   

2000

 

1999

   

(Unaudited)

 

(Unaudited)

Revenue

     

Services

8,537,501

 

4,321,540

Services

6,260,334

 

3,832,458

Web

1,230,863

 

80,050

Total revenue

16,028,698

 

8,234,048

         

Cost of revenue

     

Subscription

3,688,543

 

2,235,901

Services

3,629,234

 

1,615,890

Web

61,250

 

123,000

Total cost of revenue

7,379,027

 

3,974,791

         

Gross profit

8,649,671

 

4,259,257

         

Operating expense

     

Sales and marketing

9,493,407

 

3,740,859

Research and development

3,271,184

 

2,381,782

General and administrative

3,771,148

 

2,019,577

Amortization of goodwill and intangibles

5,231,387

 

1,298

 

Stock-based compensation

3,717,753

 

371,625

 

Merger, acquisition and other

3,359,026

 

-

Total operating expense

28,843,905

 

8,515,141

         

Income (loss) from operations

(20,194,234)

 

(4,255,884)

         

Other income (expense), net

5,407,190

 

227,927

       

Income (loss) before income taxes

(14,787,044)

 

(4,027,957)

         

Provision for income taxes

64,414

 

61,576

         

Net income (loss)

(14,851,458)

 

(4,089,533)

         

Accretion on mandatorily redeemable preferred stock

-

 

43,080

         

Net income (loss) available to common stockholders

(14,851,458)

 

(4,132,613)

         

Net income (loss) per common share

     

Basic

(0.10)

 

(0.08)

Diluted

(0.10)

 

(0.08)

         

Weighted average common shares outstanding

     

Basic

154,664,865

 

49,925,913

Diluted

154,664,865

 

49,925,913

 

 

RED HAT, INC.

Consolidated Balance Sheets

           
     

May 31,

 

February 29,

     

2000

 

2000

       

 

Assets

       

Current assets:

       

Cash and cash equivalents

 

$106,050,164

 

$242,426,032

Short-term investments

 

48,314,139

 

27,460,222

Accounts receivable, net

 

10,250,190

 

7,893,936

Inventory

 

1,343,816

 

488,977

Prepaid expenses

 

2,175,166

 

1,874,973

         

Total current assets

 

168,133,475

 

280,144,140

         

Property and equipment, net

 

8,894,542

 

7,909,103

Goodwill and intangibles, net

 

87,870,770

 

58,267,419

Long-term investments

 

176,260,633

 

72,354,212

Other assets, net

 

7,713,678

 

4,859,958

Total assets

 

$448,873,098

 

$423,534,832

           

Liabilities and stockholders' equity

     

Current liabilities:

     

Accounts payable

5,909,724

 

10,774,546

Royalties payable

40,822

 

115,117

Accrued expenses

13,078,768

 

7,571,058

Deferred revenue

12,030,907

 

11,030,337

Current portion of capital lease obligation

366,315

 

366,062

       

Total current liabilities

31,426,536

 

29,857,120

       

Capital lease ob igations

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.