Press release

Red Hat Second Quarter Revenue Soars 76% to $18.5 Million

Gross Margin Continues to Improve

RALEIGH, N.C

Red Hat, Inc. (Nasdaq: RHAT), the leader in open source Internet infrastructure solutions, today reported revenue of $18.5 million for the second quarter ended August 31, 2000, a 76% increase over revenue of $10.5 million for the second quarter last year, and 15% higher than first quarter 2001 revenue of $16.0 million. Gross margins increased to 58% for the quarter, a 3.8 percentage point improvement over the prior quarter.

The Company reported an adjusted net loss for the second quarter of fiscal 2001 of $1.9 million, or $0.01 per share, compared to an adjusted net loss for the second quarter of fiscal 2000 of $4.3 million, or $0.06 per share. On a reported basis, the net loss was $15.7 million, or $0.10 per share, compared with a net loss of $4.8 million, or $0.07 per share, for the second quarter of fiscal 2000.

Commenting on the results, Matthew Szulik, president and CEO of Red Hat, Inc., said, "Demand for Open Source solutions is expanding globally across our lines of business, enterprise, small and medium sized business, and equipment manufacturers. We continue to execute to our plan of revenue growth while improving our operating efficiency".

Highlights for the second quarter include:

  • Acquired Wirespeed Communications Corporation, a leading developer of network and telecommunications components for embedded systems software, for about $30.5 million, extending Red Hat's strategy of providing expertise in embedded, networked and handheld devices that connect to one another over the Internet.


  •  
  • Acquired C2Net Software, Inc., developer of the popular Apache-based Stronghold secure web server, for about $42.7 million, strengthening Red Hat's offering of Internet infrastructure solutions with added security.


  •  
  • Formed an alliance with Ericsson to jointly develop a new range of consumer products and services for home communications. Red Hat and Ericsson have already developed the first product from the partnership, the Ericsson Cordless Screen Phone.


  •  
  • Entered an agreement with IBM whereby Red Hat will bundle all of IBM's Linux-based software into e-business solutions. Red Hat and IBM will jointly market, distribute and support bundled IBM Lotus, Tivoli and Red Hat software offerings.


  •  
  • Signed an agreement to provide support and maintenance for AMD's 'Hammer' family of processors.


  •  
  • Launched IA-64 JumpStart Program which provides all the software, tools, support and training needed for independent software and hardware vendors (ISVs and IHVs) to quickly develop solutions for Red Hat Linux on Intel's new Itanium IA-64 architecture.


  •  
  • Unveiled Red Hat(TM) High Availability Server 1.0, a specialized version of Red Hat Linux 6.2 that allows users to combine individual servers into a cluster, ideally suited to Web servers, ftp servers, mail gateways, firewalls, VPN gateways and other front-end IP-based applications where virtually uninterrupted service is required.


  •  
  • Providing engineering services and strategic software solutions for Kodak's embeedded product offerings.


  •  
  • Red Hat entered into an engineering collaboration agreement with Motorola resulting from Motorola's development of a high availability product based on Red Hat Linux.


  •  
  • Providing Red Hat Linux OS, installation services and support to Medical Center of Boston International (MCBI) for an Internet-based telemedicine network, which will provide diagnoses and intervention through a many-to-one doctor/patient relationship.


  •  
  • Through a donation of open source software and tools, Red Hat Launched the Red Hat University Program to accelerate the use of open source at universities around the world, an instrumental step in the adoption of open source worldwide.


  •  
  • Launched a worldwide roll-out of the first suite of Red Hat's e-learning courses which build prerequisite skills for Red Hat's Developer courses, as well as for e-commerce and advanced Web server administration.


  •  
  • International Data Corporation (IDC) named Red Hat the market leader for the second consecutive year in Linux shipments worldwide with 52.4 percent of all worldwide Linux server software shipments--more than three times the market share of its nearest competitor.


  •  
  • Additional IDC research states that Linux remains the fastest-growing server operating system, with the worldwide installed base of Linux growing at a 35 percent compound annual growth rate (CAGR) between 1999-2004.


  •  
  • Netcraft's May 2000 survey found that 72% of web sites running Linux run Red Hat Linux. The second largest distribution was 10%.
  • Red Hat Linux 6.2 was voted "Best Distribution" for the third straight year at the recent LinuxWorld Conference & Expo in San Jose, Calif.

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.

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.