Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 29, 2008.
"During the fourth quarter, I spent a significant amount of time meeting with customers, partners, employees and thought leaders from the open source community. The momentum of open source solutions is strong and growing, and we believe there is a significant opportunity to expand our presence with existing customers and the many companies and industries that have only just begun to adopt open source solutions in a meaningful way," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "In addition, feedback I received supports why Red Hat has been rated the number one enterprise software vendor for value by CIO Insight Magazine for four consecutive years. As a result of these factors, we are optimistic about the growth outlook for the Linux market and Red Hat as we begin fiscal 2009."
Total revenue for the quarter was $141.5 million, an increase of 27% from the year ago quarter and 5% from the prior quarter. Subscription revenue for the quarter was $121.9 million, up 27% year-over-year and 5% sequentially. For the full year, total revenue was $523.0 million, an increase of 31% over fiscal 2007 revenue, and subscription revenue was $449.8 million, up 32% from the prior year.
Net income for the quarter was $22.0 million, or $0.10 per diluted share, compared with $20.3 million, or $0.10 per diluted share, for the prior quarter and $20.5 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $42.7 million, or $0.20 per diluted share, after adjusting for stock compensation and tax expense as detailed in the tables below. This compares to non-GAAP adjusted net income of $39.7 million, or $0.19 per diluted share in the prior quarter.
For the full year, net income was $76.7 million or $0.36 per diluted share, compared with $59.9 million or $.29 per diluted share in the prior year. Non-GAAP adjusted net income for the year was $152.9 million or $0.72 per diluted share, compared to $115.9 million and $0.56 per diluted share the year before.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $71.6 million or approximately 50% of revenue for the quarter and $264.3 million for the full year. At year end, the company's total deferred revenue balance was $472.9 million, an increase of 40% on a year-over-year basis and 12% sequentially. Total cash, cash equivalents and investments as of February 29, 2008 were $1.3 billion.
Other highlights include the following:
- During the quarter, Red Hat repurchased approximately 3.7 million shares of its common stock for approximately $66 million.
- Red Hat Enterprise Linux 5 won SearchEnterpriseLinux.com's 'Product of the Year' Gold for leadership in virtualization.
- Strong JBoss business growth and a record number of attendees and IT decision makers at JBoss World in February.
- Subsequent to the quarter close, Red Hat announced the acquisition of Amentra, a regional provider of systems integration and consulting services around middleware, service-oriented architecture and open source solutions.
"It was an outstanding year. Our annual revenue grew over 30%, our deferred revenue grew 40% and we produced operating cash flow margins of 50%. The company's performance was driven by growing demand for our open source solutions and the convincing value which we are able to demonstrate with our customers. We are also realizing returns on the increased investment which we have made over the past year in engineering, sales and marketing, combined with solid execution by our associates." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.
Red Hat Summit Boston, the fourth annual conference and exhibition, will take place at the Hynes Convention Center in Boston, MA, June 18-20, 2008. Details on this year's Red Hat Summit and registration information can be found at www.redhat.com/summit/2008.
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 will have ended.
About Red Hat, Inc.
Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with over 50 offices spanning the globe. CIOs have ranked Red Hat first for value in Enterprise Software for four consecutive years in the CIO Insight Magazine Vendor Value study. 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 the JBoss Enterprise Middleware Suite. Red Hat also offers support, training and consulting services to its customers worldwide. Learn more: 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 the integration of acquisitions; 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; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; adverse results in litigation; and changes in and a dependence on key personnel, as well as other factors contained in our most recent Quarterly Report on Form 10-Q (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.
Tables follow:
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28, February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
Revenue:
Subscriptions $121,862 $ 95,906 $449,811 $341,206
Training and
services 19,631 15,215 73,205 59,418
----------- ----------- ----------- ------------
Total
subscription,
training and
services
revenue 141,493 111,121 523,016 400,624
----------- ----------- ----------- ------------
Cost of revenue:
Subscriptions 9,389 7,333 33,581 27,457
Training and
services 12,011 10,096 47,072 37,279
----------- ----------- ----------- ------------
Total cost of
subscription,
training and
services
revenue 21,400 17,429 80,653 64,736
----------- ----------- ----------- ------------
Total gross profit 120,093 93,692 442,363 335,888
Operating expense:
Sales and
marketing 52,093 39,680 192,049 145,562
Research and
development 26,316 19,954 97,417 71,038
General and
administrative 23,512 17,420 82,525 66,999
----------- ----------- ----------- ------------
Total operating
expense 101,921 77,054 371,991 283,599
----------- ----------- ----------- ------------
Income from
operations 18,172 16,638 70,372 52,289
Other income, net 18,371 11,902 60,420 43,290
Interest expense (1,611) (1,549) (6,252) (6,016)
----------- ----------- ----------- ------------
Income before
provision for
income taxes 34,932 26,991 124,540 89,563
Provision for
income taxes 12,926 6,504 47,873 29,656
----------- ----------- ----------- ------------
Net income $ 22,006 $ 20,487 $ 76,667 $ 59,907
=========== =========== =========== ============
Net income-diluted $ 22,929 $ 21,467 $ 80,274 $ 63,826
=========== =========== =========== ============
Net income per
share:
Basic $ 0.11 $ 0.11 $ 0.40 $ 0.32
Diluted $ 0.10 $ 0.10 $ 0.36 $ 0.29
Weighted average
shares
outstanding:
Basic 193,189 192,303 193,485 189,347
Diluted 220,356 220,594 221,313 218,823
Diluted net income
per share
computation:
GAAP Net income,
basic $ 22,006 $ 20,487 $ 76,667 $ 59,907
Interest expense on
convertible
debentures, net of
related GAAP tax
effects 449 477 1,754 1,906
Amortization of
debt issuance
costs, net of
related GAAP tax
effects 474 503 1,853 2,013
---------- ---------- ---------- -----------
GAAP Net income,
diluted $ 22,929 $ 21,467 $ 80,274 $ 63,826
=========== =========== =========== ============
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
February 29, February 28,
2008 2007
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 677,720 $ 527,239
Investments in debt securities 312,442 350,827
Accounts receivable, net 127,002 87,973
Prepaid expenses and other current assets 75,192 41,026
------------ ------------
Total current assets 1,192,356 1,007,065
Property and equipment, net 68,557 45,258
Goodwill 340,314 328,837
Identifiable intangibles, net 93,823 94,314
Investments in debt securities 341,781 278,028
Other assets, net 43,151 32,352
------------ ------------
Total assets $2,079,982 $1,785,854
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,341 $ 12,062
Accrued expenses 43,260 38,472
Deferred revenue 339,088 249,615
Convertible debentures 570,000 -
Other current obligations 59 214
------------ ------------
Total current liabilities 969,748 300,363
Deferred lease credits 4,977 5,235
Long term deferred revenue 133,805 89,020
Other long term obligations 20,261 -
Convertible debentures - 570,000
Stockholders' equity:
Common stock 21 20
Additional paid-in capital 1,170,328 1,040,892
Accumulated deficit (28,202) (92,092)
Treasury stock, at cost (192,946) (125,789)
Accumulated other comprehensive loss 1,990 (1,795)
------------ ------------
Total stockholders' equity 951,191 821,236
------------ ------------
Total liabilities and stockholders' equity $2,079,982 $1,785,854
============ ============
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Twelve Months Ended
------------------------ --------------------------
February 29, February 28, February 29, February 28,
2008 2007 2008 2007
Cash flows from
operating
activities:
Net income $ 22,006 $ 20,487 $ 76,667 $ 59,907
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation and
amortization 9,105 6,161 33,002 23,853
Deferred income
taxes 12,654 (771) 41,211 12,232
Share-based
compensation
expense 10,035 8,014 36,457 32,434
Excess tax
benefits from
share-based
payment
arrangements (17,041) (10,745) (61,247) (15,988)
Provision for
doubtful
accounts (31) 83 825 1,066
Amortization of
debt issuance
costs 752 752 3,010 3,008
Net gain on sale
of strategic
equity
investments (4,799) (4,799)
Other 103 - 267 (305)
Changes in operating assets
and liabilities net of
effects of acquisitions:
Accounts
receivable and
earnings in
excess of
billings (16,999) (6,674) (33,741) (17,301)
Prepaid expenses
and other
current assets (6,088) (6,143) (7,761) (8,145)
Accounts payable 6,671 1,306 4,713 4,844
Accrued expenses (5,678) 6,409 1,600 15,846
Deferred revenue 43,957 26,838 113,138 90,403
Other assets (134) (94) (266) (298)
----------- ----------- ----------- ---------
Net cash
provided by
operating
activities 54,513 45,623 203,076 201,556
----------- ----------- ------------ ------------
Cash flows from
investing
activities:
Purchase of
investment
securities (309,853) (585,229) (1,173,012) (592,673)
Proceeds from
sales and
maturities of
investment
securities 402,551 258,677 1,155,854 781,539
Acquisitions of
businesses, net
of cash acquired - - (11,784) (149,864)
Purchase of
property and
equipment (16,045) (7,885) (41,797) (22,635)
Proceeds from
sale of
strategic equity
investments 6,199 - 6,199 -
Purchase of
developed
software and
other intangible
assets (840) 319 (5,616) 319
----------- ----------- ------------ ------------
Net cash
provided by
(used in)
investing
activities 82,012 (334,118) (70,156) 16,686
----------- ----------- ------------ ------------
Cash flows from
financing
activities:
Excess tax
benefits from
share-based
payment
arrangements 17,041 10,745 61,247 15,988
Net proceeds from
issuance of
common stock
under Employee
Stock Purchase
Plan - - - 306
Proceeds from
exercise of
common stock
options 1,592 9,678 15,512 24,328
Purchase of
treasury stock (66,539) (66) (67,157) (1,664)
Structured stock
repurchase - - - 1,514
Proceeds from
other borrowings - - 2,898 -
Payments on other
borrowings - (144) (756) (400)
----------- ----------- ------------ ------------
Net cash
provided by
(used in)
financing
activities (47,906) 20,213 11,744 40,072
----------- ----------- ------------ ------------
Effect of foreign
currency exchange
rates on cash and
cash equivalents 2,142 (471) 5,817 1,378
Net increase in
cash and cash
equivalents 90,761 (268,753) 150,481 259,692
Cash and cash
equivalents at
beginning of the
period 586,959 795,992 527,239 267,547
----------- ----------- ------------ ------------
Cash and cash
equivalents at
end of period $ 677,720 $ 527,239 $ 677,720 $ 527,239
=========== =========== ============ ============
RED HAT, INC.
NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF GAAP RESULTS
TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
Non cash share-based compensation expense included in Consolidated
Statements of Operations:
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28, February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
Cost of revenue $ 657 $ 610 $ 2,393 $ 2,216
Sales and
marketing 2,606 2,280 10,193 9,033
Research and
development 2,265 2,056 8,717 7,206
General and
administration 4,507 3,068 15,154 13,979
----------- ----------- ----------- ------------
Total stock based
compensation
expense $10,035 $ 8,014 $ 36,457 $ 32,434
=========== =========== =========== ============
Reconciliation of GAAP results to non-GAAP adjusted results
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28, February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
GAAP net income $22,006 $20,487 $ 76,667 $ 59,907
GAAP provision for
income taxes 12,926 6,504 47,873 29,656
----------- ----------- ----------- ------------
GAAP income before
provision for
income taxes $34,932 $26,991 $124,540 $ 89,563
Add: Non-cash
share-based
compensation
expense per FAS
123R 10,035 8,014 36,457 32,434
----------- ----------- ----------- ------------
Non-GAAP adjusted
income before
provision for
income taxes $44,967 $35,005 $160,997 $121,997
Non-GAAP cash
provision for
income taxes $ 2,248 $ 1,750 $ 8,050 $ 6,100
----------- ----------- ----------- ------------
Non-GAAP adjusted
net income $42,719 $33,255 $152,947 $115,897
=========== =========== =========== ============
Non-GAAP adjusted
net income-diluted $44,111 $34,647 $158,514 $121,464
=========== =========== =========== ============
Non-GAAP adjusted
net income per
share:
Basic $ 0.22 $ 0.17 $ 0.79 $ 0.61
Diluted $ 0.20 $ 0.16 $ 0.72 $ 0.56
Non-GAAP diluted
net income per
share computation:
Non-GAAP adjusted
net income $42,719 $33,255 $152,947 $115,897
Interest expense on
convertible
debentures, net of
related 5% cash
tax effects 677 677 2,708 2,708
Amortization of
debt issuance
costs, net of
related 5% cash
tax effects 715 715 2,859 2,859
----------- ----------- ----------- ------------
Non-GAAP adjusted
net income-diluted $44,111 $34,647 $158,514 $121,464
=========== =========== =========== ============
Reconciliation of GAAP cash flows from operating activities to non-
GAAP adjusted cash flows from operating activities
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28, February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
GAAP net cash
provided by
operating
activities $54,513 $45,623 $203,076 $201,556
Add: Excess tax
benefits from
share-based
payment
arrangements 17,041 10,745 61,247 15,988
----------- ----------- ----------- ------------
Non-GAAP net cash
provided by
operating
activities $71,554 $56,368 $264,323 $217,544
=========== =========== =========== ============
RED HAT, INC.
RECONCILIATION OF GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
Reconciliation of GAAP results to non-GAAP adjusted results
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28,February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
GAAP Gross profit $120,093 $93,692 $442,363 $335,888
Add: Non-cash share-
based compensation
expense per FAS
123R 657 610 2,393 2,216
---------- ---------- ---------- -----------
Non-GAAP gross
profit $120,750 $94,302 $444,756 $338,104
---------- ---------- ---------- -----------
Non-GAAP gross
margin 85% 85% 85% 84%
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28,February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
GAAP operating
expenses $101,921 $77,054 $371,991 $283,599
Deduct: Non-cash
share-based
compensation
expense per FAS
123R (9,378) (7,404) (34,064) (30,218)
----------- ----------- ----------- ------------
Non-GAAP adjusted
operating expenses $ 92,543 $69,650 $337,927 $253,381
----------- ----------- ----------- ------------
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 29, February 28,February 29, February 28,
2008 2007 2008 2007
------------ ----------- ------------ ------------
GAAP operating
income $ 18,172 $16,638 $ 70,372 $ 52,289
Add: Non-cash share-
based compensation
expense per FAS
123R 10,035 8,014 36,457 32,434
----------- ----------- ----------- ------------
Non-GAAP adjusted
operating income $ 28,207 $24,652 $106,829 $ 84,723
----------- ----------- ----------- ------------
Non-GAAP adjusted
operating margin 19.9% 22.2% 20.4% 21.1%
- About Red Hat
Red Hat is the world’s leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As the connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. Learn more at 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 effects of industry consolidation; the ability of the Company to compete effectively; the integration of acquisitions and the ability to market successfully acquired technologies and products; uncertainty and adverse results in litigation and related settlements; 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; and changes in and a dependence on key personnel, as well as other factors contained in our most recent Quarterly Report on Form 10-Q (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 and political conditions, governmental and public policy changes and the impact of natural disasters such as earthquakes and floods. 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 this press release.