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Red Hat Reports Second Quarter (Q2FY15) Results

RALEIGH, N.C. -

 

  • Total revenue of $446 million, up 19% year-over-year
  • Subscription revenue of $389 million, up 19% year-over-year
  • GAAP EPS of $0.25, up 19% year-over-year; non-GAAP EPS of $0.41, up 17% year- over-year

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2015 second quarter ended August 31, 2014.

Total revenue for the quarter was $446 million and subscription revenue for the quarter was $389 million, both increased 19% year-over-year.   

“Broad demand for open source technologies, combined with Red Hat’s value proposition and market leadership position, has helped to drive organic revenue growth in the mid-to-high teens for the last 10 quarters,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Our high level of execution and commitment to investing across our technology stack, including enabling open, hybrid cloud computing in the enterprise, has led to Red Hat being recognized once again by Forbes, Inc. on its list of the World’s Most Innovative Companies.”  

GAAP operating income for the second quarter was $64 million, up 16% year-over-year. After adjusting for stock compensation, amortization expenses, certain facility exit costs and transaction costs related to business combinations, as detailed in the tables below, non-GAAP operating income for the second quarter was $109 million, up 15% year-over-year. For the second quarter, GAAP operating margin was 14.4% and non-GAAP operating margin was 24.4%.

GAAP net income for the quarter was $47 million, or $0.25 per diluted share, compared with $41 million, or $0.21 per diluted share, in the year ago quarter. After adjusting for stock compensation, amortization expenses, certain facility exit costs and transaction costs related to business combinations, as detailed in the tables below, non-GAAP net income for the quarter was $78 million, or $0.41 per diluted share, as compared to $68 million, or $0.35 per diluted share, in the year ago quarter.   

Operating cash flow was $108 million for the second quarter, as compared to $119 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $1.25 billion, an increase of 18% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2014 was $1.32 billion, after repurchasing approximately $80 million of common stock, or approximately 1.5 million shares, in the second quarter. Red Hat has repurchased approximately $160 million of common stock, or approximately 3.0 million shares, during the first six months of fiscal year 2015.

“We experienced strong growth across our routes to market during the second quarter,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “The fastest growing part of our channel business comes from the 80+ Red Hat certified public cloud providers that provide our technologies on-demand in their clouds. The rapid revenue growth from these public cloud partners, which we recognize immediately and contains no deferred revenue, helped us to meaningfully exceed our second quarter revenue guidance.”

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 Six Months Ended
       August 31, August 31, August 31, August 31,
       2014 2013 2014 2013
Revenue:             
              
 Subscriptions     $389,495 $326,692 $761,462 $642,509
 Training and services     56,404 47,731 108,191 95,173
              
              
  Total subscription, training and services revenue    445,899 374,423 869,653 737,682
              
Cost of revenue:             
              
 Subscriptions     27,791 23,518 55,551 46,893
 Training and services     39,383 32,062 76,066 64,744
              
              
  Total cost of subscription, training and services revenue    67,174 55,580 131,617 111,637
              
              
 Total gross profit     378,725 318,843 738,036 626,045
              
Operating expense:             
 Sales and marketing     174,520 144,596 351,358 287,040
 Research and development     95,265 78,299 185,204 152,100
 General and administrative     44,713 38,203 86,284 72,537
 Facility exit costs     - 2,171 - 2,171
              
  Total operating expense    314,498 263,269 622,846 513,848
              
Income from operations      64,227 55,574 115,190 112,197
 Interest income     2,010 1,527 3,852 3,029
 Other income (expense), net     (289) 1,196 68 772
              
              
Income before provision for income taxes      65,948 58,297 119,110 115,998
Provision for income taxes      19,125 17,489 34,542 34,799
              
Net income      $46,823 $40,808 $84,568 $81,199
              
Net income per share:             
 Basic     $0.25 $0.22 $0.45 $0.43
 Diluted     $0.25 $0.21 $0.44 $0.42
              
Weighted average shares outstanding:             
 Basic     188,162 189,437 188,767 190,276
 Diluted     190,755 191,432 191,135 192,230

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
           
ASSETS
        August 31, February 28,
        2014 2014 (1)
        (Unaudited)  
Current assets:          
 Cash and cash equivalents      $585,381 $646,742
 Investments in debt and equity securities      217,659 335,387
 Accounts receivable, net      283,952 360,594
 Deferred tax assets, net      111,522 108,264
 Prepaid expenses      125,256 118,387
 Other current assets      1,794 1,808
           
   Total current assets    1,325,564 1,571,182
           
 Property and equipment, net      175,844 173,917
 Goodwill      870,063 687,430
 Identifiable intangibles, net      146,904 133,399
 Investments in debt securities      513,903 505,300
 Other assets, net      35,026 35,391
           
   Total assets    $3,067,304 $3,106,619
           
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:          
 Accounts payable and accrued expenses      $211,552 $179,468
 Deferred revenue      920,605 966,832
 Other current obligations      1,852 1,786
           
   Total current liabilities    1,134,009 1,148,086
           
 Long term deferred revenue      331,192 322,365
 Other long term obligations      87,447 85,003
Stockholders' equity:          
 Common stock      23 23
 Additional paid-in capital      1,942,659 1,891,848
 Retained earnings      804,740 720,172
 Treasury stock, at cost      (1,216,741) (1,056,419)
 Accumulated other comprehensive loss      (16,025) (4,459)
           
   Total stockholders' equity    1,514,656 1,551,165
           
   Total liabilities and stockholders' equity    $3,067,304 $3,106,619
           
           
   (1) Derived from audited financial statements       

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
              
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
Cash flows from operating activities:             
Net income      $46,823 $40,808 $84,568 $81,199
Adjustments to reconcile net income to net cash provided by             
operating activities:             
 Depreciation and amortization     19,539 18,439 38,463 36,371
 Share-based compensation expense     36,605 29,874 65,319 53,006
 Deferred income taxes     975 1,208 3,905 11,020
 Net amortization of bond premium on available-for-sale debt securities     2,525 2,285 4,558 4,336
 Other     595 (96) (353) 47
Changes in operating assets and liabilities net of effects of acquisitions:             
 Accounts receivable     (18,349) (6,341) 78,231 66,081
 Prepaid expenses     (2,391) (5,645) (7,580) (2,394)
 Accounts payable and accrued expenses     27,266 38,902 29,921 26,293
 Deferred revenue     (6,209) 1,880 (25,957) (15,020)
 Other     358 (2,385) 1,349 (195)
              
  Net cash provided by operating activities    107,737 118,929 272,424 260,744
              
Cash flows from investing activities:             
 Purchase of available-for-sale debt securities     (50,567) (217,433) (319,141) (347,076)
 Proceeds from sales and maturities of available-for-sale debt securities     140,101 153,917 409,532 479,767
 Acquisition of business, net of cash acquired     (66,183) - (217,804) -
 Purchase of other intangible assets     (1,198) (10,177) (1,751) (12,521)
 Purchase of property and equipment     (14,290) (21,829) (22,884) (48,506)
 Other     (1,038) (2,126) 2,434 (1,934)
              
  Net cash provided by (used in) investing activities    6,825 (97,648) (149,614) 69,730
              
Cash flows from financing activities:             
 Excess tax benefits from share-based payment arrangements     423 2,610 1,409 5,643
 Proceeds from exercise of common stock options     644 635 689 1,088
 Purchase of treasury stock     (80,028) (20,009) (160,061) (199,345)
 Payments related to net settlement of employee share-based compensation awards     (3,831) (3,833) (17,561) (14,815)
 Payments on other borrowings     (1,635) (312) (1,990) (617)
              
  Net cash used in financing activities    (84,427) (20,909) (177,514) (208,046)
              
 Effect of foreign currency exchange rates on cash and cash equivalents     (8,902) (1,576) (6,657) (12,718)
 Net increase (decrease) in cash and cash equivalents     21,233 (1,204) (61,361) 109,710
 Cash and cash equivalents at beginning of the period     564,148 597,998 646,742 487,084
              
Cash and cash equivalents at end of period      $585,381 $596,794 $585,381 $596,794

 

 

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,
       2014 2013 2014 2013
              
 Cost of revenue     $3,425 $3,100 $6,543 $5,939
 Sales and marketing     13,691 10,365 23,929 19,741
 Research and development     11,098 9,058 19,962 15,939
 General and administration     8,391 7,351 14,885 11,387
 Total share-based compensation expense     $36,605 $29,874 $65,319 $53,006
              
              
Amortization of intangible assets expense included in Consolidated Statements of Operations:             
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
 Cost of revenue     $2,486 $2,496 $5,102 $5,169
 Sales and marketing     1,992 1,958 3,574 3,916
 Research and development     959 959 1,917 1,918
 General and administration     1,607 1,203 3,035 2,740
 Total amortization of intangible assets expense     $7,044 $6,616 $13,628 $13,743
              
              
Facility exit costs included in Consolidated Statements of Operations:             
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
 Facility exit costs     - $2,171 - $2,171
              
              
Transaction costs related to business combinations included in Consolidated Statements of Operations:             
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
 Transaction costs related to business combinations     $949 - $2,940 -
              
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
GAAP net income      $46,823 $40,808 $84,568 $81,199
              
Provision for income taxes      19,125 17,489 34,542 34,799
              
GAAP income before provision for income taxes      $65,948 $58,297 $119,110 $115,998
              
Add: Non-cash share-based compensation expense      36,605 29,874 65,319 53,006
Add: Amortization of intangible assets      7,044 6,616 13,628 13,743
Add: Facility exit costs      - 2,171 - 2,171
Add: Transaction costs related to business combinations      949 - 2,940 -
              
Non-GAAP adjusted income before provision for income taxes      $110,546 $96,958 $200,997 $184,918
              
Provision for income taxes      32,058 29,088 58,289 55,475
              
Non-GAAP adjusted net income (basic and diluted)      $78,488 $67,870 $142,708 $129,443
              
Non-GAAP adjusted net income per share:             
 Basic     $0.42 $0.36 $0.76 $0.68
 Diluted     $0.41 $0.35 $0.75 $0.67

 

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,
       2014 2013 2014 2013
              
GAAP gross profit      $378,725 $318,843 $738,036 $626,045
              
Add: Non-cash share-based compensation expense      3,425 3,100 6,543 5,939
Add: Amortization of intangible assets      2,486 2,496 5,102 5,169
              
Non-GAAP gross profit      $384,636 $324,439 $749,681 $637,153
              
Non-GAAP gross margin      86.3% 86.7% 86.2% 86.4%
              
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
GAAP operating expenses      $314,498 $263,269 $622,846 $513,848
              
Deduct: Non-cash share-based compensation expense      (33,180) (26,774) (58,776) (47,067)
Deduct: Amortization of intangible assets      (4,558) (4,120) (8,526) (8,574)
Deduct: Facility exit costs      - (2,171) - (2,171)
Deduct: Transaction costs related to business combinations      (949) - (2,940) -
              
Non-GAAP adjusted operating expenses      $275,811 $230,204 $552,604 $456,036
              
              
       Three Months Ended Six Months Ended
         August 31,   August 31,
       2014 2013 2014 2013
              
GAAP operating income      $64,227 $55,574 $115,190 $112,197
              
Add: Non-cash share-based compensation expense      36,605 29,874 65,319 53,006
Add: Amortization of intangible assets      7,044 6,616 13,628 13,743
Add: Facility exit costs      - 2,171 - 2,171
Add: Transaction costs related to business combinations      949 - 2,940 -
              
Non-GAAP adjusted operating income      $108,825 $94,235 $197,077 $181,117
              
Non-GAAP adjusted operating margin      24.4% 25.2% 22.7% 24.6%
              
              
       Three Months Ended    
         August 31, Year-Over-Year  
       2014 2013 Growth Rate  
              
GAAP subscription revenue      $389,495 $326,692 19.2%  
Adjustment for currency impact      (1,004) -    
Non-GAAP subscription revenue on a constant currency basis      $388,491 $326,692 18.9%  
              
GAAP training and services revenue      $56,404 $47,731 18.2%  
Adjustment for currency impact      893 -    
Non-GAAP training and services revenue on a constant currency basis      $57,297 $47,731 20.0%  
              
GAAP total subscription, training and services revenue      $445,899 $374,423 19.1%  
Adjustment for currency impact      (111) -    
Non-GAAP total subscription, training and services revenue on a constant currency basis      $445,788 $374,423 19.1%  
              
              
       Six Months Ended    
         August 31, Year-Over-Year  
       2014 2013 Growth Rate  
              
GAAP subscription revenue      $761,462 $642,509 18.5%  
Adjustment for currency impact      (2,301) -    
Non-GAAP subscription revenue on a constant currency basis      $759,161 $642,509 18.2%  
              
GAAP training and services revenue      $108,191 $95,173 13.7%  
Adjustment for currency impact      1,597 -    
Non-GAAP training and services revenue on a constant currency basis      $109,788 $95,173 15.4%  
              
GAAP total subscription, training and services revenue      $869,653 $737,682 17.9%  
Adjustment for currency impact      (704) -    
Non-GAAP total subscription, training and services revenue on a constant currency basis      $868,949 $737,682 17.8%  

 

 

  • 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.