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Press release

Red Hat Reports Third Quarter Results

RALEIGH, N.C.
  • Third quarter revenue of $290 million, up 23% year-over-year
  • Third quarter GAAP operating income of $54 million, up 41% year-over-year; non-GAAP operating income of $79 million, up 36% year-over-year
  • Third quarter GAAP EPS of $0.19, up 46% year-over-year; non-GAAP EPS of $0.28, up 40% year-over-year
  • Third quarter operating cash flow of $97 million, up 36% year-over-year

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2012 third quarter ended November 30, 2011.

Total revenue for the quarter was $290.0 million, an increase of 23% from the year ago quarter. Subscription revenue for the quarter was $246.5 million, up 24% year-over-year.

"Red Hat continues to benefit from enterprise customers that are seeking to leverage their IT infrastructure to drive significant productivity gains and agility across their organizations. The combination of strong sales execution, market demand and market share gains contributed to organic billings and revenue growth of 23% for the quarter," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We also recently completed the acquisition and integration of Gluster, including the launch of our first Red Hat branded storage product for unstructured data. We will continue to expand our storage solutions in cloud computing and big data storage, and believe that Red Hat is well positioned to deliver disruptive solutions in the large and growing storage market."

GAAP operating income for the third quarter was $53.6 million, or 18.5% operating margin. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the third quarter was $78.8 million, up 36% year-over-year. Non-GAAP operating margin was 27.2%, up 260 basis points from the year ago quarter.

Net income for the quarter was $38.2 million, or $0.19 per diluted share, compared with $26.0 million, or $0.13 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP net income for the quarter was $55.7 million, or $0.28 per diluted share, as compared to $39.1 million, or $0.20 per diluted share, in the year ago quarter.

Operating cash flow was $96.6 million for the third quarter, as compared to $70.8 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $819.6 million, an increase of 20% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2011 was $1.2 billion.

"We continued to deliver consistent performance across our business which resulted in strong growth in our key financial metrics. At the same time, we continued to invest in strategic growth initiatives." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "When compared to the first three quarters of last fiscal year, our year-to-date revenue, non-GAAP operating income and operating cash flow are up 26%, 35% and 35%, respectively."

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 provider of open source solutions and an S&P 500 company, is headquartered in Raleigh, NC with more than 70 offices spanning the globe. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, management, storage and service-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 effects of industry consolidation; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 the earthquakes and floods, including events in Japan. 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.

Red Hat Inc., Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.


 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                               
                               
                Three Months Ended     Nine Months Ended
                November 30,   November 30,     November 30,   November 30,
                2011   2010     2011   2010
Revenue:                  
                               
    Subscriptions   $ 246,538     $ 198,842     $ 710,408     $ 564,101
    Training and services     43,488       36,734       125,684       100,380
                               
                               
        Total subscription, training and services revenue     290,026       235,576       836,092       664,481
                               
Cost of revenue:                  
                               
    Subscriptions     17,041       13,336       48,876       38,256
    Training and services     28,148       26,408       85,399       70,427
                               
                               
        Total cost of subscription, training and services revenue     45,189       39,744       134,275       108,683
                               
                               
  Total gross profit     244,837       195,832       701,817       555,798
                               
Operating expense:                  
  Sales and marketing     107,561       85,138       304,617       239,136
  Research and development     53,739       43,083       153,515       126,102
  General and administrative     29,965       29,655       92,277       84,294
                               
    Total operating expense     191,265       157,876       550,409       449,532
                               
Income from operations     53,572       37,956       151,408       106,266
  Interest income     2,075       1,608       6,138       5,046
  Other income (loss), net     (227 )     462       (167 )     2,140
                               
                               
Income before provision for income taxes     55,420       40,026       157,379       113,452
Provision for income taxes     17,180       14,009       46,722       39,708
                               
Net income   $ 38,240     $ 26,017     $ 110,657     $ 73,744
                               
Net income-diluted   $ 38,240     $ 26,017     $ 110,657     $ 73,744
                               
Net income per share:                  
  Basic   $ 0.20     $ 0.14     $ 0.57     $ 0.39
  Diluted   $ 0.19     $ 0.13     $ 0.56     $ 0.38
                               
Weighted average shares outstanding:                  
  Basic     193,393       191,296       193,162       189,410
  Diluted     196,468       196,908       196,493       195,723

 

 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                       
ASSETS
                November 30,     February 28,
                2011     2011 (1)
                (Unaudited)      
Current assets:          
  Cash and cash equivalents   $ 526,665       $ 642,630  
  Investments in debt and equity securities     281,647         217,970  
  Accounts receivable, net     206,449         184,741  
  Deferred tax assets, net     69,460         75,720  
  Prepaid expenses     67,422         62,364  
  Other current assets     2,175         1,133  
                       
    Total current assets     1,153,818         1,184,558  
                       
  Property and equipment, net     83,925         75,558  
  Goodwill     591,061         463,673  
  Identifiable intangibles, net     104,566         109,932  
  Investments in debt securities     408,455         331,791  
  Other assets, net     38,449         33,810  
                       
    Total assets   $ 2,380,274       $ 2,199,322  
                       
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:          
  Accounts payable   $ 22,405       $ 16,285  
  Accrued expenses     101,107         90,229  
  Deferred revenue     609,746         572,637  
  Other current obligations     632         650  
                       
    Total current liabilities     733,890         679,801  
                       
  Deferred lease credits     5,058         5,215  
  Long term deferred revenue     209,869         199,617  
  Other long term obligations     24,060         23,990  
Stockholders' equity:          
  Common stock     23         22  
  Additional paid-in capital     1,679,955         1,610,238  
  Retained earnings     355,707         245,050  
  Treasury stock, at cost     (619,744 )       (562,792 )
  Accumulated other comprehensive loss     (8,544 )       (1,819 )
                       
      Total stockholders' equity     1,407,397         1,290,699  
                       
      Total liabilities and stockholders' equity   $ 2,380,274       $ 2,199,322  
                       
            (1) derived from audited financial statements          

 

         
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                       
                                       
                Three Months Ended       Nine Months Ended
                November 30,   November 30,       November 30,   November 30,
                2011   2010       2011   2010
                                       
Cash flows from operating activities:                          
Net income   $ 38,240       $ 26,017         $ 110,657       $ 73,744  

Adjustments to reconcile net income to net cash provided by
operating activities:

                         
                         
  Depreciation and amortization     12,392         11,829           38,278         35,240  
  Share-based compensation expense     20,770         15,340           55,710         44,189  
  Deferred income taxes     17,015         7,911           36,225         29,697  
  Excess tax benefits from share-based payment arrangements     (7,626 )       (10,800 )         (24,298 )       (31,999 )
  Gain on sale of available-for-sale equity securities     -         (1,726 )         (1,307 )       (2,843 )
  Other     (233 )       673           757         789  
Changes in operating assets and liabilities:                          
  Accounts receivable     (35,014 )       (23,762 )         (23,429 )       (11,030 )
  Prepaid expenses     (3,096 )       (4,613 )         (6,324 )       (9,357 )
  Accounts payable     6,585         5,544           6,209         2,662  
  Accrued expenses     15,621         16,343           15,386         24,595  
  Deferred revenue     32,046         26,803           56,167         39,184  
  Other     (144 )       1,261           (159 )       877  
                                       
  Net cash provided by operating activities     96,556         70,820           263,872         195,748  
                                       
Cash flows from investing activities:                          
  Purchase of available-for-sale debt securities     (329,730 )       (314,729 )         (731,016 )       (535,093 )
  Proceeds from sales and maturities of available-for-sale debt securities     196,991         191,259           578,267         605,388  
  Proceeds from sales of available-for-sale equity securities     -         1,843           1,346         3,000  
  Acquisition of business, net of cash acquired     (135,210 )       (31,381 )         (135,210 )       (31,381 )
  Purchase of strategic equity investments     (1,622 )       -           (2,622 )       -  
  Purchase of developed technologies and other intangible assets     (643 )       (9,481 )         (4,245 )       (12,426 )
  Purchase of property and equipment     (11,115 )       (10,079 )         (31,294 )       (25,171 )
                                       
  Net cash provided by (used in) investing activities     (281,329 )       (172,568 )         (324,774 )       4,317  
                                       
Cash flows from financing activities:                          
  Excess tax benefits from share-based payment arrangements     7,626         10,800           24,298         31,999  
  Proceeds from exercise of common stock options     7,139         24,654           15,552         80,353  
  Purchase of treasury stock     -         -           (56,952 )       (79,355 )
  Payments related to net settlement of employee share-based compensation awards     (20,118 )       (14,899 )         (32,103 )       (23,089 )
  Proceeds from other borrowings     66         335           66         335  
  Payments on other borrowings     (136 )       -           (825 )       (877 )
                                       
  Net cash provided by (used in) financing activities     (5,423 )       20,890           (49,964 )       9,366  
                                       
Effect of foreign currency exchange rates on cash and cash equivalents     (20,597 )       6,545           (5,099 )       (2,635 )
Net increase (decrease) in cash and cash equivalents     (210,793 )       (74,313 )         (115,965 )       206,796  
Cash and cash equivalents at beginning of the period     737,458         669,227           642,630         388,118  
                                       
Cash and cash equivalents at end of period   $ 526,665       $ 594,914         $ 526,665       $ 594,914  

 

                       
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     Nine Months Ended
                November 30,   November 30,   November 30,   November 30,
                2011   2010   2011   2010
                                   
  Cost of revenue   $ 2,245       $ 1,607       $ 5,877       $ 4,168  
  Sales and marketing     7,157         4,922         18,829         13,469  
  Research and development     5,368         3,960         14,445         11,395  
  General and administration     6,000         4,851         16,559         15,157  
  Total share-based compensation expense   $ 20,770       $ 15,340       $ 55,710       $ 44,189  
                                   
                                   
Amortization of intangible assets expense included in Consolidated Statements of Operations:
                                   
                Three Months Ended     Nine Months Ended
                November 30,   November 30,   November 30,   November 30,
                2011   2010   2011   2010
                                   
  Cost of revenue   $ 669       $ 887       $ 2,864       $ 2,295  
  Sales and marketing     1,957         2,076         5,874         6,237  
  Research and development     940         925         3,254         2,775  
  General and administration     905         839         2,616         2,494  
  Total amortization of intangible assets expense   $ 4,471       $ 4,727       $ 14,608       $ 13,801  
                                   
                                   
                                   
                                   
                Three Months Ended     Nine Months Ended
                November 30,   November 30,   November 30,   November 30,
                2011   2010   2011   2010
                                   
GAAP net income   $ 38,240       $ 26,017       $ 110,657       $ 73,744  
                                   
Provision for income taxes     17,180         14,009         46,722         39,708  
                                   
GAAP income before provision for income taxes   $ 55,420       $ 40,026       $ 157,379       $ 113,452  
                                   
Add: Non-cash share-based compensation expense     20,770         15,340         55,710         44,189  
Add: Amortization of intangible assets     4,471         4,727         14,608         13,801  
                                   
Non-GAAP adjusted income before provision for income taxes   $ 80,661       $ 60,093       $ 227,697       $ 171,442  
                                   
Provision for income taxes (1)     25,005         21,033         68,521         60,005  
                                   
Non-GAAP adjusted net income   $ 55,656       $ 39,060       $ 159,176       $ 111,437  
                                   
Non-GAAP adjusted net income-diluted   $ 55,656       $ 39,060       $ 159,176       $ 111,437  
                                   
Non-GAAP adjusted net income per share:                      
  Basic   $ 0.29       $ 0.20       $ 0.82       $ 0.59  
  Diluted   $ 0.28       $ 0.20       $ 0.81       $ 0.57  
                                   
                                   
(1) Provision for income taxes:                      
Non-GAAP adjusted net income before income tax provision   $ 80,661       $ 60,093       $ 227,697       $ 171,442  
  Estimated annual effective tax rate     31 %       35 %       31 %       35 %
Non-GAAP provision for income taxes before discrete tax benefit   $ 25,005       $ 21,033       $ 70,586       $ 60,005  
  Discrete tax benefit     -         -         2,065         -  
Provision for income taxes on Non-GAAP adjusted net income   $ 25,005       $ 21,033       $ 68,521       $ 60,005  
                                       

 

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
                             
                             
                             
Reconciliation of GAAP results to non-GAAP adjusted results                
                             
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2011   2010   2011   2010
                             
GAAP gross profit $ 244,837       $ 195,832     $ 701,817     $ 555,798  
                             
Add: Non-cash share-based compensation expense   2,245         1,607       5,877       4,168  
Add: Amortization of intangible assets   669         887       2,864       2,295  
                             
Non-GAAP gross profit $ 247,751       $ 198,326     $ 710,558     $ 562,261  
                             
Non-GAAP gross margin   85 %       84 %     85 %     85 %
                             
                             
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2011   2010   2011   2010
                             
GAAP operating expenses $ 191,265       $ 157,876     $ 550,409     $ 449,532  
                             
Deduct: Non-cash share-based compensation expense   (18,525 )       (13,733 )     (49,833 )     (40,021 )
Deduct: Amortization of intangible assets   (3,802 )       (3,840 )     (11,744 )     (11,506 )
                             
Non-GAAP adjusted operating expenses $ 168,938       $ 140,303     $ 488,832     $ 398,005  
                             
                             
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2011   2010   2011   2010
                             
GAAP operating income $ 53,572       $ 37,956     $ 151,408     $ 106,266  
                             
Add: Non-cash share-based compensation expense   20,770         15,340       55,710       44,189  
Add: Amortization of intangible assets   4,471         4,727       14,608       13,801  
                             
Non-GAAP adjusted operating income $ 78,813       $ 58,023     $ 221,726     $ 164,256  
                             
Non-GAAP adjusted operating margin   27.2 %       24.6 %     26.5 %     24.7 %
                                 

 

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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.