Red Hat Reports First Quarter Results

Raleigh

United States, June 24, 2009

Revenue of $174 million, up 11% from prior year GAAP EPS of $0.10, non-GAAP EPS of $0.15; both up 25% from prior year Repurchased $47 million of common stock

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2010 first quarter ended May 31, 2009.

Total revenue for the quarter was $174.4 million, an increase of 11% from the year ago quarter. Subscription revenue for the quarter was $148.8 million, up 14% year-over-year.

"We are pleased to report better than expected revenue and EPS results in Q1," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Red Hat's growth is driven in part by our ability to help enterprise customers save money in a challenging IT spending environment. Our open source solutions drive new capabilities, efficiencies and functionality into the mission critical infrastructure of our customers."

GAAP operating income for the first quarter was $25.1 million, or a 14.4% operating margin. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the first quarter was $40.7 million, up 19% year-over-year. Non-GAAP operating margin was 23.4%, up 160 basis points from the year ago quarter.

Net income for the quarter was $18.5 million, or $0.10 per diluted share, compared with $17.3 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP net income for the quarter was $28.7 million, or $0.15 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $26.0 million, or $0.12 per diluted share, in the year ago quarter.

Operating cash flow totaled $61.2 million, as compared to $63.4 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $567.3 million, an increase of 15% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2009 were $884.5 million.

"While we remain focused on managing discretionary costs and improving efficiencies, we also continue to invest in growth opportunities in middleware, virtualization and cloud computing," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These efforts combined with solid top line growth contributed to non-GAAP operating income growth of 19% year-over-year and healthy cash flow. In the quarter, we repurchased $47 million of common stock while strengthening our balance sheet with a 5% sequential increase in cash and investments. On a year-over-year basis, we have reduced our diluted shares outstanding by approximately 11%."

Other highlights include the following:

  • We announced our JBoss Open Choice strategy, which is intended to address the evolving needs of application developers and the changing market by embracing a variety of programming models, frameworks and languages. Executing on this strategy, Red Hat now has application platform solutions for common Java application workloads; from simple web applications, to light and rich Java applications, to Java Enterprise Edition (EE) based applications. Our new JBoss platforms support a variety of popular programming models including Spring Framework, Seam and Google Web Toolkit.
  • Delivering on Red Hat's virtualization strategy and roadmap, the company announced the beta releases of Red Hat Enterprise Virtualization portfolio of products, all of which are integrated with our KVM hypervisor. Included in the beta release is a new management product for the management of server virtualization. The Red Hat Enterprise Virtualization portfolio will leverage Red Hat's broad certified ecosystem and will offer flexibility, operational choice and efficiency to customers.

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 open source solutions provider, is headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs ranked Red Hat as one of the top vendors delivering value in Enterprise Software for five consecutive years in the CIO Insight Magazine Vendor Value survey. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with applications, management and Services Oriented Architecture (SOA) solutions, including 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 integration of acquisitions and the ability to market successfully acquired technologies and products; the ability of the Company to effectively compete; 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; adverse results in litigation; and changes in and a dependence on key personnel, as well as other factors contained in our most recent Annual Report on Form 10-K (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 conditions, and governmental and public policy changes. 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.

LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended
May 31,May 31,
20092008
Revenue:
Subscriptions $ 148,790 $ 130,694
Training and services 25,598 25,941
Total subscription, training and services revenue 174,388 156,635
Cost of revenue:
Subscriptions 10,050 8,957
Training and services 16,418 17,472
Total cost of subscription, training and services revenue 26,468 26,429
Total gross profit 147,920 130,206
Operating expense:
ales and marketing 63,977 59,271
Research and development 35,102 28,911
General and administrative 23,785 22,114
Total operating expense 122,864 110,296
Income from operations 25,056 19,910
Other income, net 3,480 10,020
Interest expense (53 ) (1,586 )
Income before provision for income taxes 28,483 28,344
Provision for income taxes 9,969 11,054
Net income $ 18,514 $ 17,290
Net income-diluted $ 18,514 $ 18,184
Net income per share:
Basic $ 0.10 $ 0.09
Diluted $ 0.10 $ 0.08
Weighted average shares outstanding:
Basic 188,916 190,779
Diluted 194,382 218,853
Diluted net income per share computation:
Net income, basic $ 18,514 $ 17,290
Interest expense on convertible debentures, net of related GAAP tax effects

-

435
Amortization of debt issuance costs, net of related GAAP tax effects

-

459
Net income, diluted $ 18,514 $ 18,184
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
May 31,February 28,
20092009
(Unaudited)
Current assets: