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Press release

Red Hat Reports Fourth Quarter and Fiscal Year 2010 Results

Annual revenue of $748 million, up 15% year-over-year Annual subscription revenue of $639 million, up 18% year-over-year Annual GAAP EPS of $0.45, up 15%; Non-GAAP EPS of $0.71, up 20% year-over-year Deferred Revenue of $646 million, up 19% year-over-year

RALEIGH, N.C.

Red Hat (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2010.

Total revenue for the quarter was $195.9 million, an increase of 18% from the year ago quarter. Subscription revenue for the quarter was $169.2 million, up 21% year-over-year. For the full year, total revenue was $748.2 million, an increase of 15% over the prior year, and subscription revenue was $638.7 million, up 18% year-over-year.

"With double digit revenue growth and record billings, our fourth quarter capped off a year of solid performance, moving us closer to our milestone revenue goal of a billion dollars," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "As we look forward, we believe that we are well positioned at the confluence of several major technology trends in the data center, including cloud computing, virtualization and middleware. Red Hat's products directly address these trends and deliver innovative, cost-saving solutions to our customers that we expect will continue to drive our growth."

GAAP operating income for the fourth quarter and the full fiscal year 2010 was $28.0 million and $100.3 million respectively. GAAP operating margin was 14.3% in the fourth quarter and 13.4% for the full year. After adjusting for stock compensation expense, amortization expense and the charge for our previously announced litigation settlement, as detailed in the tables below, non-GAAP operating income for the quarter was $46.6 million, or a 23.8% operating margin, and full year non-GAAP operating income was $177.0 million. Full year non-GAAP operating margin was 23.7%, an increase of 100 basis points from the prior year.

GAAP net income for the quarter was $23.4 million, or $0.12 per diluted share, compared with $16.4 million, or $0.08 per diluted share, for the prior quarter and $16.0 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $36.5 million, or $0.19 per diluted share, after adjusting for stock compensation expense and amortization expense, as detailed in the tables below. This compares to non-GAAP adjusted net income of $33.5 million, or $0.17 per diluted share in the prior quarter and $28.5 million, or $0.15 per diluted share in the year ago quarter.

For the full year, GAAP net income was $87.3 million or $0.45 per diluted share, compared with $78.7 million or $0.39 per diluted share in the prior year. After adjusting for stock compensation expense, amortization expense and the charge for our previously announced litigation settlement, as detailed in the tables below, non-GAAP adjusted net income for the year was $138.1 million or $0.71 per diluted share, compared to $121.5 million and $0.59 per diluted share for the fiscal year ended February 28, 2009.

GAAP operating cash flow totaled $77.9 million for the quarter and $255.2 million for the full year, after payment of $8.8 million for our previously announced litigation settlement. At year end, the company's total deferred revenue balance was $645.9 million, an increase of 19% on a year-over-year basis and 4% sequentially. Cash and investments at February 28, 2010 totaled $970.2 million after repurchasing approximately $90.1 million, or 3.1 million shares, of common stock in the quarter. For the full fiscal year, Red Hat repurchased $236.4 million, or 10 million shares, of common stock. The diluted share count for the full year is 193.5 million shares, down 8.4% from the prior year.

"This year has been about consistent execution in the most difficult economic conditions in our lifetime. We managed costs carefully while continuing to invest significantly. We added over 350 employees consistently throughout the year, principally in engineering and sales. We invested in sales training, systems and new equipment while holding the line on travel and other discretionary costs. As a result, we grew annual non-GAAP operating income by 19% and improved operating margin by 100 basis points for the full year," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We have had consistently strong cash flow for some time, but the fourth quarter was exceptional with GAAP operating cash flow of $77.9 million, up 31% year-over-year, even after the one time litigation payment of $8.8 million."

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 and a component of the S&P 500, 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 six 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 virtualization, applications, management and Services Oriented Architecture (SOA) solutions, including Red Hat Enterprise Virtualization and 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 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 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   Twelve Months Ended
                February 28,   February 28,   February 28,   February 28,
                2010   2009   2010   2009
Revenue:                
                             
    Subscriptions   $ 169,158     $ 139,356     $ 638,654     $ 541,210  
    Training and services     26,710       26,865       109,582       111,362  
                             
                             
        Total subscription, training and services revenue     195,868       166,221       748,236       652,572  
                             
Cost of revenue:                
                             
    Subscriptions     11,393       9,819       43,426       37,267  
    Training and services     17,945       15,834       70,419       68,859  
                             
                             
        Total cost of subscription, training and services revenue     29,338       25,653       113,845       106,126  
                             
                             
  Total gross profit     166,530       140,568       634,391       546,446  
                             
Operating expense:                
  Sales and marketing     70,462       61,202       272,705      

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.