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Press release

Red Hat Reports Fourth Quarter and Fiscal Year 2014 Results

  • Fourth quarter revenue of $400 million, up 15% year-over-year; full fiscal year revenue of $1.53 billion, up 15% year-over-year
  • Fourth quarter subscription revenue of $351 million, up 16% year-over-year; full fiscal year subscription revenue of $1.34 billion, up 16% year-over-year
  • Fourth quarter operating cash flow of $185 million, up 35% year-over-year; full fiscal year operating cash flow of $541 million, up 16% year-over-year
  • Year-end deferred revenue balance of $1.29 billion, up 18% year-over-year

Raleigh, N.C. – March 27, 2014 – Red Hat, Inc. (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, 2014.

Total revenue for the quarter was $400 million, an increase of 15% in U.S. dollars from the year ago quarter, or 17% measured in constant currency.  Constant currency references in this release are as detailed in the tables below.  Subscription revenue for the quarter was $351 million, up 16% in U.S. dollars year-over-year, or 18% measured in constant currency. For the full fiscal year, total revenue was $1.53 billion, up 15% in U.S. dollars year-over-year, or 17% measured in constant currency, and subscription revenue was $1.34 billion, up 16% in U.S. dollars year-over-year, or 18% measured in constant currency.

“The fourth quarter was a strong finish to fiscal 2014, and it was highlighted by a record number of deals over $1 million and 24% growth in our billings proxy to $565 million,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat.  “Continued strong demand for Red Hat’s technology portfolio drove strong growth in our core platform and application development technologies during the fourth quarter.  In addition, our cross-selling efforts resulted in early wins for our emerging technologies, which address top CIO priorities that are driving the evolution of enterprise computing.”  

GAAP operating income for the fourth quarter and the full fiscal year was $59 million and $232 million, respectively.  GAAP operating margin was 14.8% in the fourth quarter and 15.1% for the full year.  After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP operating income for the quarter was $97 million, or a 24.3% operating margin.  Full year non-GAAP operating income was $376 million and full year non-GAAP operating margin was 24.5%.

GAAP net income for the fourth quarter was $45 million, or $0.24 per diluted share, compared with $52 million, or $0.27 per diluted share, for the prior quarter and $43 million, or $0.22 per diluted share, in the year ago quarter.  Non-GAAP adjusted net income for the fourth quarter was $75 million, or $0.39 per diluted share, after adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below.  This compares to non-GAAP adjusted net income of $81 million, or $0.42 per diluted share in the prior quarter, and $70 million, or $0.36 per diluted share in the year ago quarter.  

For the full year, GAAP net income was $178 million or $0.93 per diluted share, compared with $150 million or $0.77 per diluted share in the prior year.  After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP adjusted net income for the year was $285 million or $1.49 per diluted share, compared to $240 million or $1.23 per diluted share for the previous fiscal year.  For fiscal year 2014, Red Hat fully diluted shares outstanding were approximately 192.0 million for the full fiscal year, lower by 3.8 million shares due in part to the repurchase of approximately 5.0 million shares, or approximately $239 million of common stock during the year.

Operating cash flow totaled $185 million for the fourth quarter and $541 million for the full year.  At the end of the fiscal year, the company’s total deferred revenue balance was $1.29 billion, an increase of 18% on a year-over-year basis and 15% sequentially.  Cash and investments at February 28, 2014 totaled $1.49 billion.    

“We delivered consistent mid-teen revenue growth during every quarter in fiscal year 2014, and we continued to invest in new technologies and commercial capabilities that further expand our future growth opportunities in open hybrid cloud computing,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.  “Red Hat continues to deliver a compelling combination of revenue growth, profitability and cash flow.  Our annual non-GAAP operating income growth of 15% contributed to operating cash flow of $541 million for fiscal year 2014, up 16% year-over-year, which included a record quarterly operating cash flow of $185 million the fourth quarter, up 35% year-over-year.”

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $1.74 billion for fiscal year 2014 compared with $1.49 billion for the prior fiscal year, an increase of 17%.  Total backlog for fiscal year 2014 was in excess of $1.56 billion, up 14% year-over-year.  We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements.  The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $270 million as of February 28, 2014, compared with the in excess of $280 million  ending balance reported for fiscal year 2013.  The portion of the total backlog to be billed in the next twelve months not reflected in our financial statements was in excess of $190 million as of February 28, 2014, compared with in excess of $180 million for the fiscal year ending February 28, 2013.

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.

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About Red Hat, Inc.
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.

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Media Contact:                                
Stephanie Wonderlick                            
Red Hat, Inc.                                
(571) 421-8169                                
swonderl@redhat.com                    

Investor Relations:    
Tom McCallum
Red Hat, Inc.
(919) 754-4630
tmccallum@redhat.com

 

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
                           
                           
Non cash share-based compensation expense included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2014   2013   2014   2013
                           
  Cost of revenue           $2,932   $2,656   $11,793   $9,433
  Sales and marketing           10,313   8,944   40,322   32,906
  Research and development           9,094   7,606   34,194   29,647
  General and administration           8,239   6,748   27,465   26,712
  Total share-based compensation expense           $30,578   $25,954   $113,774   $98,698
                           
                           
Amortization of intangible assets expense included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2014   2013   2014   2013
                           
  Cost of revenue           $2,508   $2,695   $10,180   $5,943
  Sales and marketing           2,477   2,144   8,872   8,416
  Research and development           959   959   3,836   3,836
  General and administration           1,288   1,528   5,316   5,328
  Total amortization of intangible assets expense           $7,232   $7,326   $28,204   $23,523
                           
                           
Facility exit costs included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2014   2013   2014   2013
                           
  Facility exit costs           -   -   $2,171   $3,142
                           
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2014   2013   2014   2013
                           
GAAP net income             $45,069   $42,973   $178,292   $150,204
                           
Provision for income taxes             16,551   9,086   61,256   59,548
                           
GAAP income before provision for income taxes             $61,620   $52,059   $239,548   $209,752
                           
Add: Non-cash share-based compensation expense             30,578   25,954   113,774   98,698
Add: Amortization of intangible assets             7,232   7,326   28,204   23,523
Add: Facility exit costs             -   -   2,171   3,142
                           
Non-GAAP adjusted income before provision for income taxes             $99,430   $85,339   $383,697   $335,115
                           
Provision for income taxes (1)             24,277   15,213   98,226   95,139
                           
Non-GAAP adjusted net income (basic and diluted)             $75,153   $70,126   $285,471   $239,976
                           
Non-GAAP adjusted net income per share:                          
  Basic           $0.40   $0.36   $1.50   $1.24
  Diluted           $0.39   $0.36   $1.49   $1.23
                           
                           
(1) Provision for income taxes:                          
Non-GAAP adjusted net income before income tax provision             $99,430   $85,339   $383,697   $335,115
  Effective tax rates, excluding discrete tax items 24.4%   17.8%   26.7%   28.4%
Non-GAAP provision for income taxes before discrete tax benefit             $24,277   $15,213   $102,451   $95,139
  Discrete tax benefit           -   -   4,225   -
Provision for income taxes on Non-GAAP adjusted net income             $24,277   $15,213   $98,226   $95,139

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.