Red Hat Reports Fiscal Second Quarter Results

Raleigh

United States, September 28, 2005

Revenue of $65.7 million up 42% year-over-year, Cash Flow From Operations Grows 48% year-over-year to $45.8 million

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

Total revenue for the quarter was $65.7 million, a year-over-year increase of 42% and a sequential increase of 8%. Subscription revenue was $54.3 million, an increase of 56% year-over-year and 10% sequentially.

The company reported operating income of $12.8 million, representing a 68% increase from the prior quarter and 90% from the year ago period. Net income for the quarter was $16.7 million, a sequential increase of 35% and year-over-year increase of 42%. Earnings per diluted share were $0.09 for the quarter, an increase from $0.07 in the prior quarter and $0.06 in the year ago period.

The company reported $45.8 million in cash flow from operations during the second quarter, a 48% year-over-year increase. After repurchasing $11.6 million of common stock and $20.0 million face value of the Company's convertible bonds during the quarter, cash and investments totaled $966 million at the end of August 2005.

At quarter end, the company's total deferred revenue balance was $184.0 million, an increase of 85% on a year-over-year basis and 17% on a sequential basis.

Other highlights from the quarter included:

  • Billings, as approximated by the sum of revenue and quarterly change in deferred revenue, was $91.8 million, up 58% year-over year.
  • Gross margin improved to 83% from 80% in the prior quarter.
  • Operating margin grew to 20% from 13% last quarter.

"Our second quarter results show strong growth in revenue and cash flow," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We continue to focus on operational improvements and solid execution in all areas of our business. Our investments in people and systems have improved our productivity, positively impacting our results."

View 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.

LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.