Red Hat, Inc. Reports Strong Revenue Gains In Second Fiscal Quarter

Red Hat, Inc. (Nasdaq: RHAT), a leading provider and developer of open source software, services and information, today reported that its revenues totaled $4.4 million in its second fiscal quarter, which ended on August 31, 1999. This is a 95% increase over revenues of $2.3 million for the same period a year earlier.

In the six months ending August 31, 1999, Red Hat's revenues were $7.2 million, 89% higher than revenues of $3.9 million in the first half of the preceding fiscal year. The net loss was $5.2 million, or $0.18 per common share, in the current fiscal year's first six months, as compared to $3.1 million or $0.09 per common share for the same period in the prior fiscal year. Had the Company's initial public offering been completed at March 1, 1999, the Company's weighted average common shares outstanding for the six months ended August 31, 1999 would have been 66,532,172, which would have resulted in a net loss per common share of $0.08 for such period.

"Our performance during the second quarter illustrates our ability to successfully execute our business plan and the increasingly rapid adoption of open source software around the world," said Bob Young, chairman and chief executive officer. "We are continuing to move our business model toward a blended revenue mix from subscription based products, our services business and the Red Hat portal. At the same time, we're demonstrating that Red Hat has the ability to drive the growth of the open source market. As more and more enterprise customers become part of the open source community, demand for the support and services we provide naturally increases globally."

"We're responding to the growing demand for open source software and services by extending the Red Hat organization to more and more parts of the world. During the second quarter we opened an office in Japan and appointed a general manager for our European operation. We are moving quickly to staff these offices with sales, marketing, services and engineering personnel and plan to begin providing 24/7 support in these important growth markets next month. These international offices follow the opening of our West Coast office last summer, increasing our presence around the globe."

The company's shift to a subscription model in providing products to its customers has been well received, Mr. Young said, with product revenue providing 74% of total revenue in the second quarter. "In addition, we doubled the number of Red Hat's enterprise customers to 34 this quarter compared to 17 for the first quarter of this fiscal year, reflecting the accelerating rate at which the open source approach is being adopted by corporations both in the U.S. and around the world."

"We are driving the growth of open source software, a method of developing software that gives control of the technology to the customer," Mr. Young said. "Among the major reasons for this growth are the dependability of Red Hat's products, the growing recognition and power of the Red Hat brand, and our market leadership position. We believe that Red Hat is becoming the reference point for open source usage. This is apparent in the stature of the companies with which we have formed alliances - companies such as Compaq, Dell, IBM and Oracle - and the growing number of enterprise applications."

Highlights of the second quarter include:

• A revenue-sharing service agreement with IBM Global Services in which we work with IBM to provide technical support to customers of Red Hat Linux.
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• A similar agreement in which we work with Compaq to provide technical support to customers of Red Hat Linux.
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• A third such agreement in which Siemens offers products, technical support, and training services related to Red Hat Linux in Germany.
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• A contract with Global Knowledge under which it has become a training partner of Red Hat, providing its customers with both training and certification in Red Hat Linux.
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• A contract that makes Collective Technologies a partner of Red Hat in its consulting activities.
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• The acquisition of certain assets, including a number of engineering employees, of delix GmbH of Germany, developers of DLD Linux with significant open source expertise.
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• The acquisition of certain assets of Atomic Vision, a Web site development company, the addition of a number of former Atomic Vision employees and subsequent improvements to the redhat.com Web site.
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• Increased acceptance of the redhat.com Web site as a leading destination site for communications within the growing open source community. The site had 33.3 million page views in the second quarter and has begun carrying paid advertising.
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"This is a time of tremendous opportunity for Red Hat - a time for spreading the use of our products and services as rapidly as possible," Mr. Young said. "We are pursuing our opportunities both through partners and by building up our own ability to reach and serve customers directly. Using both approaches simultaneously enables us to get the maximum use of our resources, and also gives full scope to the experience skills of our seasoned management team."

Investor Contact:
John Heilshorn
Jody Burfening
Lippert/Heilshorn & Associates
212-838-3777
john@lhai.com
jody@lhai.com

Company Contact:
Manoj George
Chief Financial Officer
Red Hat, Inc.
919-547-0012 x238
manoj@redhat.com

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

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