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Press release

Red Hat Reports First Quarter Results

Revenue of $174 million, up 11% from prior year GAAP EPS of $0.10, non-GAAP EPS of $0.15; both up 25% from prior year Repurchased $47 million of common stock

RALEIGH, N.C.

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2010 first quarter ended May 31, 2009.

Total revenue for the quarter was $174.4 million, an increase of 11% from the year ago quarter. Subscription revenue for the quarter was $148.8 million, up 14% year-over-year.

"We are pleased to report better than expected revenue and EPS results in Q1," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Red Hat's growth is driven in part by our ability to help enterprise customers save money in a challenging IT spending environment. Our open source solutions drive new capabilities, efficiencies and functionality into the mission critical infrastructure of our customers."

GAAP operating income for the first quarter was $25.1 million, or a 14.4% operating margin. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the first quarter was $40.7 million, up 19% year-over-year. Non-GAAP operating margin was 23.4%, up 160 basis points from the year ago quarter.

Net income for the quarter was $18.5 million, or $0.10 per diluted share, compared with $17.3 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP net income for the quarter was $28.7 million, or $0.15 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $26.0 million, or $0.12 per diluted share, in the year ago quarter.

Operating cash flow totaled $61.2 million, as compared to $63.4 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $567.3 million, an increase of 15% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2009 were $884.5 million.

"While we remain focused on managing discretionary costs and improving efficiencies, we also continue to invest in growth opportunities in middleware, virtualization and cloud computing," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These efforts combined with solid top line growth contributed to non-GAAP operating income growth of 19% year-over-year and healthy cash flow. In the quarter, we repurchased $47 million of common stock while strengthening our balance sheet with a 5% sequential increase in cash and investments. On a year-over-year basis, we have reduced our diluted shares outstanding by approximately 11%."

Other highlights include the following:

  • We announced our JBoss Open Choice strategy, which is intended to address the evolving needs of application developers and the changing market by embracing a variety of programming models, frameworks and languages. Executing on this strategy, Red Hat now has application platform solutions for common Java application workloads; from simple web applications, to light and rich Java applications, to Java Enterprise Edition (EE) based applications. Our new JBoss platforms support a variety of popular programming models including Spring Framework, Seam and Google Web Toolkit.
  • Delivering on Red Hat's virtualization strategy and roadmap, the company announced the beta releases of Red Hat Enterprise Virtualization portfolio of products, all of which are integrated with our KVM hypervisor. Included in the beta release is a new management product for the management of server virtualization. The Red Hat Enterprise Virtualization portfolio will leverage Red Hat's broad certified ecosystem and will offer flexibility, operational choice and efficiency to customers.

Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. A live webcast of Red Hat's results will begin at 5:00 pm ET today and can be accessed by the general public at Red Hat's investor relations website at http://investors.redhat.com. A replay of the webcast will be available shortly after the live event has ended.

About Red Hat, Inc.

Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs ranked Red Hat as one of the top vendors delivering value in Enterprise Software for five consecutive years in the CIO Insight Magazine Vendor Value survey. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with applications, management and Services Oriented Architecture (SOA) solutions, including JBoss Enterprise Middleware. Red Hat also offers support, training and consulting services to its customers worldwide. Learn more: 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 integration of acquisitions and the ability to market successfully acquired technologies and products; the ability of the Company to effectively compete; 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; adverse results in litigation; and changes in and a dependence on key personnel, as well as other factors contained in our most recent Annual Report on Form 10-K (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 conditions, and governmental and public policy changes. 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.

LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries.

 
 
 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                     
                     
                Three Months Ended
                May 31,   May 31,
                2009   2008
Revenue:        
                     
    Subscriptions   $ 148,790     $ 130,694  
    Training and services     25,598       25,941  
                     
                     
        Total subscription, training and services revenue     174,388       156,635  
                     
Cost of revenue:        
                     
    Subscriptions     10,050       8,957  
    Training and services     16,418       17,472  
                     
                     
        Total cost of subscription, training and services revenue     26,468       26,429  
                     
                     
  Total gross profit     147,920       130,206  
                     
Operating expense:        
  ales and marketing     63,977       59,271  
  Research and development     35,102       28,911  
  General and administrative     23,785       22,114  
                     
    Total operating expense     122,864       110,296  
                     
Income from operations     25,056       19,910  
Other income, net     3,480       10,020  
Interest expense     (53 )     (1,586 )
                     
Income before provision for income taxes     28,483       28,344  
Provision for income taxes     9,969       11,054  
                     
Net income   $ 18,514     $ 17,290  
                     
Net income-diluted   $ 18,514     $ 18,184  
                     
Net income per share:        
  Basic     $ 0.10     $ 0.09  
  Diluted   $ 0.10     $ 0.08  
                     
Weighted average shares outstanding:        
  Basic       188,916       190,779  
  Diluted     194,382       218,853  
                     
Diluted net income per share computation:        
Net income, basic   $ 18,514     $ 17,290  
Interest expense on convertible debentures, net of related GAAP tax effects    

-

      435  
Amortization of debt issuance costs, net of related GAAP tax effects    

-

      459  
                     
Net income, diluted   $ 18,514     $ 18,184  
 
 
 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                     
ASSETS
                May 31,   February 28,
                2009   2009
                (Unaudited)    
Current assets:        
 

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.