Red Hat Delivers Strong Operating Performance in Second Quarter

Raleigh

United States, September 18, 2003

Strong growth in Red Hat Enterprise Linux sales drives first quarterly operating profit and $10.4 million in operating cash flow

Red Hat, Inc. (Nasdaq:RHAT), the world's premier open source and Linux provider, today reported financial results for its second quarter of fiscal year 2004. These results are provided in full GAAP format.

In the second quarter of fiscal 2004, Red Hat reported revenue of $28.8 million, a sequential increase of 6% compared to $27.2 million in the first quarter of fiscal 2004, and a year-over-year increase of 36%.

The company also reported net income of $3.3 million, or $0.02 per share. This compares to a net income of $1.5 million, or $0.01 per share, in the prior quarter, and a net loss of $1.9 million, or $0.01 per share, in the same quarter a year ago.

The company generated $10.4 million, or $0.06 per share, in positive cash flow from operations during the second quarter, which represents a 89% sequential increase from the first quarter and its fifth consecutive quarter of positive cash flow from operations. The company ended the second quarter with a cash and investments balance of $307 million, a sequential increase of $7 million and a year-over-year increase of $18 million.

The company reported a net operating profit of $240,000, compared to a net operating loss of $1.1 million in the prior quarter and a net operating loss of $4.7 million in the second quarter of the prior year.

Highlights for the second quarter include:

  • Second quarter sales of annual subscriptions for the Red Hat Enterprise Linux family of technologies increased sequentially by 2,300, or 10%, to approximately 26,000 subscriptions.
  • Subscription revenues from Enterprise Technologies grew 21% sequentially and 123% year-over-year. The strong sales growth reflects accelerating market interest by enterprise customers in flexible, high-value open source solutions delivered and supported by Red Hat.
  • Gross margins increased to record levels, with blended gross margins at 72%, and gross margins of Enterprise subscription technologies and services at 74%.

"Our strong quarterly operating results reflect the strong demand for standards-based Red Hat Enterprise Linux Solutions in the enterprise," said Kevin Thomspon, Executive Vice President and Chief Financial Officer at Red Hat. "The consistent improvement in our gross margins over the last three quarters to 72% for the second quarter shows the significant scalability of our subscription business model."

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

Forward-Looking Statements

Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov.

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