Red Hat Reports Fiscal First Quarter Results

Raleigh

United States, June 30, 2005

Revenue Up 46% From Prior Year, Record Cash Flow From Operations

Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal first quarter ended May 31, 2005.

Total revenue for the quarter was $60.8 million, a year-over-year increase of 46% and a sequential increase of 6%. Enterprise subscription revenue was $48.7 million, an increase of 63% year-over-year and 7% sequentially.

For the first quarter of fiscal 2006, the company reported net income of $12.4 million or $0.07 per diluted share, up from $11.8 million or $0.06 per diluted share in the prior quarter.

The company reported $36.6 million in cash flow from operations during the first quarter, a 20% increase from the prior quarter and the highest level in the company's history.

After repurchasing $5.1 million of common stock and $10.0 million face value of debt during the quarter, cash and investments totaled $951.5 million at the end of May 2005. These transactions were completed in conjunction with the expanded repurchase program approved by the company's board of directors in March of this year.

At quarter end, the company's total deferred revenue balance was $157.9 million, an increase of $20.6 million from the prior quarter and $70.1 million from the year ago period.

"Our results for the first quarter represent a solid start to the fiscal year," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We continue to experience strong customer demand. This quarter's record-level billings speak to the continued momentum we are experiencing globally for our open source solutions."

"From an operational standpoint," Peters said, "the process improvements we implemented last quarter began to pay off earlier than we expected in terms of shorter cash collection cycles and improved cash flow from operations. Thus, despite some negative impact from recent movements in foreign currency, we remain confident in the long-term cash flow capabilities of the company. Our first quarter performance was a step forward in our stated goal of significantly growing our cash flow run rate over the course of the fiscal year."

Other highlights from the quarter included:

  • DSO improved by 7 days, from 64 days in the prior quarter to 57 days in the first quarter.
  • Channel partner bookings increased to 60% of orders versus 56% last quarter and is approaching the company's previously stated long-term goal of 70%.
  • The company released Red Hat Directory Server, providing the identity management market its first enterprise class open source solution.

Dion Cornett, Red Hat's Vice President of Investor Relations, stated, "We are very pleased with the momentum we continue to see in our business and the open source market place. We remain committed to our customers, partners, employees and the open source community as a whole. And as this quarter's string of new records indicates, our partners and customers remain committed to Red Hat."

See the earnings tables.

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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