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Red Hat Reports Second Quarter Results

* Second quarter revenue of $281 million, up 28% year-over-year * Second quarter GAAP EPS of $0.20, up 67% year-over-year; non-GAAP EPS of $0.29, up 53% year-over-year * Second quarter deferred revenue of $813 million, up 25% year-over-year

RALEIGH, N.C. -

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2012 second quarter ended August 31, 2011.

Total revenue for the quarter was $281.3 million, an increase of 28% from the year ago quarter. Subscription revenue for the quarter was $238.3 million, up 28% year-over-year.

"The combination of strong sales execution and customer demand led to second quarter revenue that was above our guidance and represented our fourth straight quarter of accelerating revenue growth," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We continued to win and strengthen relationships with enterprise customers who partner with Red Hat to reduce costs while modernizing their IT infrastructure to enable applications to run on bare metal, virtualization and in the cloud. Based on the strong first half results, we believe Red Hat remains well positioned to finish fiscal 2012 as the first billion dollar open source software vendor."

GAAP operating income for the second quarter was $52.5 million, or 18.7% operating margin. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the second quarter was $76.4 million, up 41% year-over-year. Non-GAAP operating margin was 27.2%, up 250 basis points from the year ago quarter.

Net income for the quarter was $40.0 million, or $0.20 per diluted share, compared with $23.7 million, or $0.12 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP net income for the quarter was $56.5 million, or $0.29 per diluted share, as compared to $36.8 million, or $0.19 per diluted share, in the year ago quarter. Both GAAP and non-GAAP net income for the quarter included a discrete tax benefit of $2.1 million, approximately $0.01 per diluted share. Excluding this tax benefit, GAAP earnings per share would have been $0.19 and non-GAAP earnings per share would have been $0.28 for the quarter.

Operating cash flow was $77.1 million for the second quarter, as compared to $64.3 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $813.2 million, an increase of 25% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2011 was $1.3 billion.

"Our investments in sales and R&D continued to pay off, producing market share gains, higher revenue and 30% year-over-year billings growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Our productivity continued to improve as evidenced by non-GAAP operating income growth of 41% and cash flow growth of 20% in Q2. Moreover, year-to-date non-GAAP operating income grew 35% and operating cash flow grew 34% compared to the first half of last fiscal year."

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 provider of open source solutions and an S&P 500 company, is headquartered in Raleigh, NC with over 70 offices spanning the globe. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, applications, management and Services Oriented Architecture (SOA) solutions, including Red Hat Enterprise Virtualization and 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 effects of industry consolidation; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 the earthquakes and floods, including events in Japan. 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.

Red Hat Inc., Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

 

 
 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
 
 
        Three Months Ended Six Months Ended
        August 31, August 31, August 31, August 31,
        2011 2010 2011 2010
Revenue:        
               
  Subscriptions $238,337 $186,183 $463,870 $365,259
  Training and services  42,983  33,578  82,196  63,646
               
               
    Total subscription, training and services revenue  281,320  219,761  546,066  428,905
               
Cost of revenue:        
               
  Subscriptions  16,596  12,256  31,835  24,920
  Training and services  30,043  23,446  57,251  44,019
               
               
    Total cost of subscription, training and services revenue  46,639  35,702  89,086  68,939
               
               
 Total gross profit  234,681  184,059  456,980  359,966
               
Operating expense:        
 Sales and marketing  99,730  79,434  197,056  153,998
 Research and development  51,488  42,361  99,776  83,019
 General and administrative  30,985  28,193  62,311  54,638
               
  Total operating expense  182,203  149,988  359,143  291,655
               
Income from operations  52,478  34,071  97,837  68,311
 Interest income  2,127  1,775  4,063  3,438
 Other income, net  326  548  59  1,677
               
               
Income before provision for income taxes  54,931  36,394  101,959  73,426
Provision for income taxes  14,963  12,738  29,542  25,699
               
Net income $39,968 $23,656 $72,417 $47,727
               
Net income-diluted $39,968 $23,656 $72,417 $47,727
               
Net income per share:        
 Basic $0.21 $0.13 $0.38 $0.25
 Diluted $0.20 $0.12 $0.37 $0.25
               
Weighted average shares outstanding:        
 Basic  192,937  189,027  193,046  188,477
 Diluted  196,171  193,560  196,428  193,457

 

 
 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
ASSETS    
        August 31, February 28,
        2011 2011
        (Unaudited)  
Current assets:    
 Cash and cash equivalents $737,458  $642,630 
 Investments in debt and equity securities  199,781   217,970 
 Accounts receivable, net  175,703   184,741 
 Deferred tax assets, net  79,707   75,720 
 Prepaid expenses  66,557   62,364 
 Other current assets  1,583   1,133 
           
   Total current assets  1,260,789   1,184,558 
           
 Property and equipment, net  81,478   75,558 
 Goodwill  465,558   463,673 
 Identifiable intangibles, net  102,363   109,932 
 Investments in debt securities  363,862   331,791 
 Other assets, net  34,480   33,810 
           
   Total assets $2,308,530  $2,199,322 
           
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
 Accounts payable $16,142  $16,285 
 Accrued expenses  88,736   90,229 
 Deferred revenue  601,627   572,637 
 Other current obligations  457   650 
           
  Total current liabilities  706,962   679,801 
           
 Deferred lease credits  5,056   5,215 
 Long term deferred revenue  211,527   199,617 
 Other long term obligations  23,814   23,990 
Stockholders' equity:    
 Common stock  22   22 
 Additional paid-in capital  1,664,433   1,610,238 
 Retained earnings  317,467   245,050 
 Treasury stock, at cost  (619,744)  (562,792)
 Accumulated other comprehensive loss  (1,007)  (1,819)
           
   Total stockholders' equity  1,361,171   1,290,699 
           
   Total liabilities and stockholders' equity $2,308,530  $2,199,322 

 

 
 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
     Three Months Ended Six Months Ended
     August 31, August 31, August 31, August 31,
     2011 2010 2011 2010
            
Cash flows from operating activities:        
Net income $39,968  $23,656  $72,417  $47,727 

Adjustments to reconcile net income to net cash provided by operating activities:

        
Depreciation and amortization  13,147   11,689   25,886   23,411 
Share-based compensation expense  18,753   15,675   34,940   28,849 
Deferred income taxes  8,155   13,434   19,210   21,786 
Excess tax benefits from share-based payment arrangements  (8,112)  (10,192)  (16,672)  (21,199)
Gain on sale of available-for-sale equity securities  (663)  (601)  (1,307)  (1,117)
Other  423   319   990   116 
Changes in operating assets and liabilities:        

Accounts receivable

  (20,457)  (6,794)  11,585   12,732 
Prepaid expenses  65   (4,153)  (3,228)  (4,744)
Accounts payable  (286)  2,187   (376)  (2,882)
Accrued expenses  3,614   6,712   (235)  8,252 
Deferred revenue  22,851   13,439   24,121   12,381 
Other  (357)  (1,087)  (19)  (384)
            
Net cash provided by operating activities  77,101   64,284   167,312   124,928 
            
Cash flows from investing activities:        
Purchase of available-for-sale debt securities  (220,436)  (110,021)  (401,286)  (220,364)
Proceeds from sales and maturities of available-for-sale debt securities  208,693   215,811   381,276   414,129 
Proceeds from sales of available-for-sale equity securities  681   609   1,346   1,157 
Purchase of strategic equity investments  (1,000)  -   (1,000)  - 
Purchase of developed technologies and other intangible assets  (1,059)  (1,324)  (3,602)  (2,945)
Purchase of property and equipment  (11,523)  (8,371)  (20,179)  (15,093)
            
Net cash provided by (used in) investing activities  (24,644)  96,704   (43,445)  176,884 
            
Cash flows from financing activities:        
Excess tax benefits from share-based payment arrangements  8,112   10,192   16,672   21,199 
Proceeds from exercise of common stock options  3,370   18,011   8,413   55,699 
Purchase of treasury stock  (38,006)  (4,994)  (56,952)  (79,355)
Payments related to net settlement of employee share-based compensation awards  (2,952)  (1,135)  (11,985)  (8,190)
Payments on other borrowings  (94)  -   (688)  (877)
            
Net cash provided by (used in) financing activities  (29,570)  22,074   (44,540)  (11,524)
            
Effect of foreign currency exchange rates on cash and cash equivalents  4,348   7,795   15,501   (9,179)
Net increase in cash and cash equivalents  27,235   190,857   94,828   281,109 
Cash and cash equivalents at beginning of the period  710,223   478,370   642,630   388,118 
            
Cash and cash equivalents at end of period $737,458  $669,227  $737,458  $669,227 

 

  
  
RED HAT, INC. 
RECONCILIATION OF CERTAIN 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 Six Months Ended 
        August 31, August 31, August 31, August 31, 
        2011 2010 2011 2010 
                
 Cost of revenue $1,842  $1,370  $3,631  $2,561 
 Sales and marketing  6,101   4,771   11,672   8,547 
 Research and development  4,883   4,080   9,077   7,435 
 General and administration  5,927   5,454   10,560   10,306 
 Total share-based compensation expense $18,753  $15,675  $34,940  $28,849 
                
                
Amortization of intangible assets expense included in Consolidated Statements of Operations:  
                
        Three Months Ended Six Months Ended 
        August 31, August 31, August 31, August 31, 
        2011 2010 2011 2010 
                
 Cost of revenue $1,216  $704  $2,195  $1,408 
 Sales and marketing  1,958   2,075   3,918   4,161 
 Research and development  1,157   925   2,313   1,850 
 General and administration  865   833   1,711   1,655 
 Total amortization of intangible assets expense $5,196  $4,537  $10,137  $9,074 
                
                
                
                
        Three Months Ended Six Months Ended 
        August 31, August 31, August 31, August 31, 
        2011 2010 2011 2010 
                
GAAP net income $39,968  $23,656  $72,417  $47,727 
                
Provision for income taxes  

14,963

   

12,738

   

29,542

   

25,699

 
                
GAAP income before provision for income taxes $54,931  $36,394  $101,959  $73,426 
                
Add: Non-cash share-based compensation expense  18,753   15,675   34,940   28,849 
Add: Amortization of intangible assets  5,196   4,537   10,137   9,074 
                
Non-GAAP adjusted income before provision for income taxes $78,880  $56,606  $147,036  $111,349 
                
Provision for income taxes (1)  22,388   19,812   43,516   38,972 
                
Non-GAAP adjusted net income $56,492  $36,794  $103,520  $72,377 
                
Non-GAAP adjusted net income-diluted $56,492  $36,794  $103,520  $72,377 
                
Non-GAAP adjusted net income per share:         
 Basic $0.29  $0.19  $0.54  $0.38 
 Diluted $0.29  $0.19  $0.53  $0.37 
                
                
(1) Provision for income taxes:         
Non-GAAP adjusted net income before income tax provision $78,880  $56,606  $147,036  $111,349 
 Estimated annual effective tax rate  31%  35%  31%  35%
Non-GAAP provision for income taxes before discrete tax benefit $24,453  $19,812  $45,581  $38,972 
 Discrete tax benefit  2,065   

-

   2,065  

-

 
Provision for income taxes on Non-GAAP adjusted net income $22,388  $19,812  $43,516  $38,972 

 

 
 
RED HAT, INC.
RECONCILIATION OF CERTAIN 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 Six Months Ended
        August 31, August 31, August 31, August 31,
        

2011

 2010 2011 2010
               
GAAP gross profit $234,681  $184,059  $456,980  $359,966 
               
Add: Non-cash share-based compensation expense  1,842   1,370   3,631   2,561 
Add: Amortization of intangible assets  1,216   704   2,195   1,408 
               
Non-GAAP gross profit $237,739  $186,133  $462,806  $363,935 
               
Non-GAAP gross margin  85%  85%  85%  85%
               
               
        Three Months Ended Six Months Ended
        August 31, August 31, August 31, August 31,
        

2011

 2010 2011 2010
               
GAAP operating expenses $182,203  $149,988  $359,143  $291,655 
               
Deduct: Non-cash share-based compensation expense  (16,911)  (14,305)  (31,309)  (26,288)
Deduct: Amortization of intangible assets  (3,980)  (3,833)  (7,942)  (7,666)
               
Non-GAAP adjusted operating expenses $161,312  $131,850  $319,892  $257,701 
               
               
        Three Months Ended Six Months Ended
        August 31, August 31, August 31, August 31,
        

2011

 2010 2011 2010
               
GAAP operating income $52,478  $34,071  $97,837  $68,311 
               
Add: Non-cash share-based compensation expense  18,753   15,675   34,940   28,849 
Add: Amortization of intangible assets  5,196   4,537   10,137   9,074 
               
Non-GAAP adjusted operating income $76,427  $54,283  $142,914  $106,234 
               
Non-GAAP adjusted operating margin  27.2%  24.7%  26.2%  24.8%

 

Red Hat Inc.
Media Contact:
Leigh Day, 919-754-4369
lday@redhat.com
or
Investor Relations:
Tom McCallum, 919-754-4630
tmccallum@redhat.com

  • 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.