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Press release

Red Hat Reports Fourth Quarter and Fiscal Year 2015 Results

RALEIGH, N.C.
  • Fourth quarter revenue of $464 million, up 16% year-over-year; full fiscal year revenue of $1.79 billion, up 17% year-over-year
  • Fourth quarter subscription revenue of $405 million, up 15% year-over-year; full fiscal year subscription revenue of $1.56 billion, up 17% year-over-year
  • Fourth quarter operating cash flow of $217 million, up 18% year-over-year; full fiscal year operating cash flow of $623 million, up 15% year-over-year
  • Year-end deferred revenue balance of $1.48 billion, up 15% year-over-year

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 28, 2015.

Total revenue for the quarter was $464 million, an increase of 16% in U.S. dollars from the year ago quarter, or 22% measured in constant currency.  Constant currency references in this release are as detailed in the tables below.  Subscription revenue for the quarter was $405 million, up 15% in U.S. dollars year-over-year, or 21% measured in constant currency. For the full fiscal year, total revenue was $1.79 billion, up 17% in U.S. dollars year-over-year, or 19% measured in constant currency, and subscription revenue was $1.56 billion, up 17% in U.S. dollars year-over-year, or 19% measured in constant currency.

"Red Hat delivered strong fourth quarter results that were highlighted by subscription revenue and total revenue that both grew over 20% year-over-year on a constant currency basis.  We continued to experience strong demand for our open, hybrid cloud technologies, as evidenced by increased cross-selling in our top 30 deals which were all over $2 million for the first time,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Customers value the consistency and flexibility as they run their applications using Red Hat solutions across a variety of deployment models, including public and private clouds, to modernize and transform their IT infrastructure.  We believe that our strategic position as a trusted provider of infrastructure and our execution this past year have positioned us for strong constant currency revenue growth in the next fiscal year.”

GAAP operating income for the fourth quarter and the full fiscal year was $68 million and $250 million, respectively.  GAAP operating margin was 14.6% in the fourth quarter and 14.0% for the full year.  After adjusting for stock compensation, amortization expenses, certain facility exit costs, transaction costs related to business combinations, and non-cash interest expense related to convertible debt as detailed in the tables below, non-GAAP operating income for the quarter was $111 million, or a 23.8% operating margin.  Full year non-GAAP operating income was $416 million and full year non-GAAP operating margin was 23.3%.

GAAP net income for the fourth quarter was $48 million, or $0.26 per diluted share, compared with $48 million, or $0.26 per diluted share, for the prior quarter and $45 million, or $0.24 per diluted share, in the year ago quarter.  Non-GAAP adjusted net income for the fourth quarter was $81 million, or $0.43 per diluted share, after adjusting for stock compensation, amortization expenses, transaction costs related to business combinations and non-cash interest expense related to convertible debt as detailed in the tables below.  This compares to non-GAAP adjusted net income of $79 million, or $0.42 per diluted share in the prior quarter, and $75 million, or $0.39 per diluted share in the year ago quarter.      

For the full year, GAAP net income was $180 million or $0.95 per diluted share, compared with $178 million or $0.93 per diluted share in the prior year.  After adjusting for stock compensation, amortization expenses, certain facility exit costs, transaction costs related to business combinations, and non-cash interest expense related to convertible debt as detailed in the tables below, non-GAAP adjusted net income for the year was $303 million or $1.60 per diluted share, compared to $285 million or $1.49 per diluted share for the previous fiscal year.  For fiscal year 2015, Red Hat fully diluted shares outstanding were approximately 189.2 million for the full fiscal year, lower by 2.8 million shares due in part to the repurchase of approximately 8.4 million shares, or approximately $535 million of common stock during the year.

Operating cash flow totaled $217 million for the fourth quarter and $623 million for the full year.  Cash and investments at February 28, 2015 totaled $1.81 billion.    

“Our strong fourth quarter marked the 52nd consecutive quarter of revenue growth and we exited the fiscal year with a record total backlog over $1.86 billion, up 19% year-over-year,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.  “We are pleased to have delivered mid-teens growth across revenue, non-GAAP operating income and cash flow despite significant foreign exchange volatility during fiscal 2015.  By focusing on the needs of our customers, our team of global associates achieved remarkable success across the company for the quarter and the year.”

Total backlog for fiscal year 2015 was in excess of $1.86 billion, up 19% year-over-year.  We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements.  At the end of the fiscal year, the company’s total deferred revenue balance was $1.48 billion, an increase of 15% on a year-over-year basis and 14% sequentially.  The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $380 million as of February 28, 2015, compared with the ending balance in excess of $270 million reported for fiscal year 2014.  The portion of the total backlog to be billed in the next twelve months not reflected in our financial statements was in excess of $230 million as of February 28, 2015, compared with in excess of $190 million for the fiscal year ending February 28, 2014.

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $2.07 billion for fiscal year 2015 compared with $1.74 billion for the prior fiscal year, an increase of 19%.  For the four-fiscal-quarter period ended February 28, 2015, our rolling average quarterly billings proxy increased $83 million, or 19%, to $518 million from $435 million for the four-fiscal-quarter period ended February 28, 2014.

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.

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014 (1)
Revenue:                          
                           
  Subscriptions           $405,073   $351,492   $1,561,234   $1,336,771
  Training and services           58,869   48,905   228,255   197,844
                           
                           
    Total subscription, training and services revenue         463,942   400,397   1,789,489   1,534,615
                           
Cost of revenue:                          
                           
  Subscriptions           28,731   25,663   112,856   97,100
  Training and services           41,487   34,873   160,343   135,500
                           
                           
    Total cost of subscription, training and services revenue         70,218   60,536   273,199   232,600
                           
                           
  Total gross profit           393,724   339,861   1,516,290   1,302,015
                           
Operating expense:                          
  Sales and marketing           189,811   157,317   728,387   597,885
  Research and development           92,038   82,644   367,856   317,263
  General and administrative           44,267   40,600   170,053   152,407
  Facility exit costs           -   -   -   2,171
                           
                           
    Total operating expense         326,116   280,561   1,266,296   1,069,726
                           
Income from operations             67,608   59,300   249,994   232,289
  Interest income           2,288   2,037   8,336   6,645
  Interest expense           5,803   45   9,394   160
  Other income (expense), net           4,784   328   6,562   774
                           
                           
Income before provision for income taxes             68,877   61,620   255,498   239,548
Provision for income taxes             21,177   16,551   75,297   61,256
                           
Net income             $47,700   $45,069   $180,201   $178,292
                           
Net income per share:                          
  Basic           $0.26   $0.24   $0.97   $0.94
  Diluted           $0.26   $0.24   $0.95   $0.93
                           
Weighted average shares outstanding:                          
  Basic           183,459   189,604   186,529   189,920
  Diluted           186,307   191,712   189,246   192,036
                           
                           
      (1) Derived from audited financial statements                    

 

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                     
ASSETS
                February 28,   February 28,
                2015   2014 (1)
                (Unaudited)    
Current assets:                    
  Cash and cash equivalents             $1,047,473   $646,742
  Investments in debt and equity securities             215,254   335,387
  Accounts receivable, net             468,021   360,594
  Deferred tax assets, net             86,796   108,264
  Prepaid expenses             150,715   118,387
  Other current assets             1,980   1,808
                     
      Total current assets         1,970,239   1,571,182
                     
  Property and equipment, net             172,151   173,917
  Goodwill             927,060   687,430
  Identifiable intangibles, net             134,276   133,399
  Investments in debt securities             546,016   505,300
  Other assets, net             53,243   35,391
                     
      Total assets         $3,802,985   $3,106,619
                     
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                    
  Accounts payable and accrued expenses             $237,733   $179,468
  Deferred revenue             1,095,115   966,832
  Other current obligations             1,844   1,786
                     
      Total current liabilities         1,334,692   1,148,086
                     
  Convertible notes             715,402   -
  Long term deferred revenue             387,213   322,365
  Other long term obligations             77,340   85,003
Stockholders' equity:                    
  Common stock             23   23
  Additional paid-in capital             1,963,851   1,891,848
  Retained earnings             900,373   720,172
  Treasury stock, at cost             (1,515,288)   (1,056,419)
  Accumulated other comprehensive loss             (60,621)   (4,459)
                     
      Total stockholders' equity         1,288,338   1,551,165
                     
      Total liabilities and stockholders' equity         $3,802,985   $3,106,619
                     
                     
      (1) Derived from audited financial statements              

 

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014 (1)
                           
Cash flows from operating activities:                          
Net income             $47,700   $45,069   $180,201   $178,292
Adjustments to reconcile net income to net cash provided by                          
operating activities:                          
  Depreciation and amortization           19,149   19,079   76,263   74,405
  Share-based compensation expense           36,290   30,578   135,232   113,774
  Deferred income taxes           20,392   4,168   23,517   13,776
  Net amortization of bond premium on available-for-sale debt securities           2,349   2,060   9,314   8,697
  Accretion of debt discount and amortization of debt issuance costs           5,142   -   8,227   -
  Other           (2,947)   926   (3,474)   1,411
Changes in operating assets and liabilities net of effects of acquisitions:                          
  Accounts receivable           (123,850)   (52,536)   (121,536)   (61,785)
  Prepaid expenses           (27,239)   (21,619)   (40,741)   (25,122)
  Accounts payable and accrued expenses           14,865   (10,129)   71,040   28,436
  Deferred revenue           224,738   164,358   282,693   205,357
  Other           795   2,728   2,059   3,339
                           
    Net cash provided by operating activities         217,384   184,682   622,795   540,580
                           
Cash flows from investing activities:                          
  Purchase of available-for-sale debt securities           (107,482)   (324,029)   (568,551)   (772,741)
  Proceeds from sales and maturities of available-for-sale debt securities           77,048   166,271   580,158   764,122
  Acquisitions of businesses, net of cash acquired           -   -   (296,121)   -
  Purchase of other intangible assets           (2,212)   (4,769)   (6,123)   (17,972)
  Purchase of property and equipment           (10,563)   (17,754)   (45,648)   (79,587)
  Other           8,365   -   11,282   (2,084)
                           
    Net cash used in investing activities         (34,844)   (180,281)   (325,003)   (108,262)
                           
Cash flows from financing activities:                          
  Excess tax benefits from share-based payment arrangements           710   3,766   5,607   12,837
  Proceeds from exercise of common stock options           1,280   811   2,434   2,122
  Purchase of treasury stock           -   -   (535,062)   (239,363)
  Payments related to net settlement of employee share-based compensation awards           (4,148)   (4,280)   (43,462)   (37,402)
  Proceeds from issuance of convertible notes, net of issuance costs           (625)   -   789,769   -
  Purchase of convertible note hedges           -   -   (148,040)   -
  Proceeds from issuance of warrants           -   -   79,776   -
  Payments on other borrowings           (390)   (325)   (2,782)   (1,304)
                           
    Net cash provided by (used in) financing activities         (3,173)   (28)   148,240   (263,110)
                           
  Effect of foreign currency exchange rates on cash and cash equivalents           (15,883)   258   (45,301)   (9,550)
  Net increase in cash and cash equivalents           163,484   4,631   400,731   159,658
  Cash and cash equivalents at beginning of the period           883,989   642,111   646,742   487,084
                           
Cash and cash equivalents at end of period             $1,047,473   $646,742   $1,047,473   $646,742
                           
                           
      (1) Derived from audited financial statements                    

 

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   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
  Cost of revenue           $3,569   $2,932   $14,027   $11,793
  Sales and marketing           15,408   10,313   55,203   40,322
  Research and development           10,426   9,094   38,517   34,194
  General and administration           6,887   8,239   27,485   27,465
  Total share-based compensation expense           $36,290   $30,578   $135,232   $113,774
                           
                           
Amortization of intangible assets expense included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
  Cost of revenue           $2,576   $2,508   $10,672   $10,180
  Sales and marketing           2,305   2,477   7,838   8,872
  Research and development           250   959   2,417   3,836
  General and administration           1,484   1,288   5,958   5,316
  Total amortization of intangible assets expense           $6,615   $7,232   $26,885   $28,204
                           
                           
Non-cash interest expense from accretion of debt discount included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
  Total non-cash interest expense from accretion of debt discount           $4,556   -   $7,292   -
                           
Facility exit costs included in Consolidated Statements of Operations:                          
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
  Facility exit costs           -   -   -   $2,171
                           
                           
Transaction costs related to business combinations included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
  Transaction costs related to business combinations           -   -   $4,001   -
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
GAAP net income             $47,700   $45,069   $180,201   $178,292
                           
Provision for income taxes             21,177   16,551   75,297   61,256
                           
GAAP income before provision for income taxes             $68,877   $61,620   $255,498   $239,548
                           
Add: Non-cash share-based compensation expense             36,290   30,578   135,232   113,774
Add: Amortization of intangible assets             6,615   7,232   26,885   28,204
Add: Non-cash interest expense from accretion of debt discount             4,556   -   7,292   -
Add: Facility exit costs             -   -   -   2,171
Add: Transaction costs related to business combinations             -   -   4,001   -
                           
Non-GAAP adjusted income before provision for income taxes             $116,338   $99,430   $428,908   $383,697
                           
(1)Provision for income taxes             35,754   24,277   126,399   98,226
                           
Non-GAAP adjusted net income (basic and diluted)             $80,584   $75,153   $302,509   $285,471
                           
Non-GAAP adjusted net income per share:                          
  Basic           $0.44   $0.40   $1.62   $1.50
  Diluted           $0.43   $0.39   $1.60   $1.49
                           
                           
(1) Provision for income taxes:                          
Non-GAAP adjusted net income before income tax provision             $116,338   $99,430   $428,908   $383,697
  Estimated annual effective tax rate           30.7%   24.4%   29.5%   26.7%
Non-GAAP provision for income taxes before discrete tax benefit             35,754   24,277   126,399   102,451
  Discrete tax benefit           -   -   -   4,225
Provision for income taxes on Non-GAAP adjusted net income             $35,754   $24,277   $126,399   $98,226

 

 

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   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
GAAP gross profit             $393,724   $339,861   $1,516,290   $1,302,015
                           
Add: Non-cash share-based compensation expense             3,569   2,932   14,027   11,793
Add: Amortization of intangible assets             2,576   2,508   10,672   10,180
                           
Non-GAAP gross profit             $399,869   $345,301   $1,540,989   $1,323,988
                           
Non-GAAP gross margin             86.2%   86.2%   86.1%   86.3%
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
GAAP operating expenses             $326,116   $280,561   $1,266,296   $1,069,726
                           
Deduct: Non-cash share-based compensation expense             (32,721)   (27,646)   (121,205)   (101,981)
Deduct: Amortization of intangible assets             (4,039)   (4,724)   (16,213)   (18,024)
Deduct: Facility exit costs             -   -   -   (2,171)
Deduct: Transaction costs related to business combinations             -   -   (4,001)   -
                           
Non-GAAP adjusted operating expenses             $289,356   $248,191   $1,124,877   $947,550
                           
                           
              Three Months Ended   Twelve Months Ended
              February 28,   February 28,   February 28,   February 28,
              2015   2014   2015   2014
                           
GAAP operating income             $67,608   $59,300   $249,994   $232,289
                           
Add: Non-cash share-based compensation expense             36,290   30,578   135,232   113,774
Add: Amortization of intangible assets             6,615   7,232   26,885   28,204
Add: Facility exit costs             -   -   -   2,171
Add: Transaction costs related to business combinations             -   -   4,001   -
                           
Non-GAAP adjusted operating income             $110,513   $97,110   $416,112   $376,438
                           
Non-GAAP adjusted operating margin             23.8%   24.3%   23.3%   24.5%
                           
                           
              Three Months Ended        
              February 28,   February 28,   Year-Over-Year    
              2015   2014   Growth Rate    
                           
GAAP subscription revenue             $405,073   $351,492   15.2%    
Adjustment for currency impact             20,187   -        
Non-GAAP subscription revenue on a constant currency basis             $425,260   $351,492   21.0%    
                           
GAAP training and services revenue             $58,869   $48,905   20.4%    
Adjustment for currency impact             3,824   -        
Non-GAAP training and services revenue on a constant currency basis             $62,693   $48,905   28.2%    
                           
GAAP total subscription, training and services revenue             $463,942   $400,397   15.9%    
Adjustment for currency impact             24,011   -        
Non-GAAP total subscription, training and services revenue on a constant currency basis             $487,953   $400,397   21.9%    
                           
                           
              Twelve Months Ended        
              February 28,   February 28,   Year-Over-Year    
              2015   2014   Growth Rate    
                           
GAAP subscription revenue             $1,561,234   $1,336,771   16.8%    
Adjustment for currency impact             27,939   -        
Non-GAAP subscription revenue on a constant currency basis             $1,589,173   $1,336,771   18.9%    
                           
GAAP training and services revenue             $228,255   $197,844   15.4%    
Adjustment for currency impact             7,960   -        
Non-GAAP training and services revenue on a constant currency basis             $236,215   $197,844   19.4%    
                           
GAAP total subscription, training and services revenue             $1,789,489   $1,534,615   16.6%    
Adjustment for currency impact             35,899   -        
Non-GAAP total subscription, training and services revenue on a constant currency basis             $1,825,388   $1,534,615   18.9%    

 

 

 

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.