Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2009 second quarter ended August 31, 2008.
"Our focused execution has delivered another quarter of solid growth and financial results," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Also in Q2, we continued to execute on our virtualization strategy with our award winning RHEL platform as the solid, certified foundation. Our goal is for Red Hat to deliver a comprehensive virtualization solution from server to desktop which will enable our customers to deploy any application, anywhere, anytime."
Total revenue for the quarter was $164.4 million, an increase of 29% from the year ago quarter and 5% from the prior quarter. Subscription revenue for the quarter was $135.7 million, up 24% year-over-year and 4% sequentially.
Net income for the quarter was $21.1 million, or $0.10 per diluted share, compared with $18.2 million, or $0.09 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $43.2 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 $36.9 million, or $0.17 per diluted share in the year ago quarter.
Operating cash flow totaled $54.3 million, compared to $49.2 million from the year ago quarter and $63.4 million from the prior quarter. At quarter end, the company's total deferred revenue balance was $496.9 million, an increase of 32% on a year-over-year basis and 1% sequentially. Total cash, cash equivalents and investments as of August 31, 2008 were $1.4 billion.
Other highlights include the following:
- JBoss Enterprise Application Platform is now available along with Red Hat Enterprise Linux on the Amazon EC2 Cloud.
- Red Hat Enterprise Linux was named the 2008 Product of the Year by Channel Insider, in the Server Operating Systems category.
- Red Hat's annual customer and user event, the Red Hat Summit, was held in Boston this year to record attendance.
- In early September, Red Hat announced the acquisition of Qumranet, Inc. which is expected to accelerate the time to market to deliver an expanded virtualization solution portfolio to the rapidly growing virtualization market. This acquisition increases Red Hat's investment in and stewardship of core open source virtualization technology including KVM, the only hypervisor embedded in the Linux Kernel. The acquisition also establishes Red Hat in the nascent Virtual Desktop Infrastructure (VDI) market.
"Our performance this quarter demonstrated strong demand for our products and services, good execution, and the consistency of results afforded by our subscription business model," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Key factors to our growth include the value message, the cost efficiencies of open source solutions and our world-class customer service."
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 60 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 survey. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with applications, management and Services Oriented Architecture (SOA) solutions, including the JBoss Enterprise Middleware Suite. 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 the integration of acquisitions and the ability to market successfully acquired technology and products; the ability of the Company to effectively compete; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; 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 Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
---------- --------- ---------- ----------
Revenue:
Subscriptions $135,709 $109,172 $266,403 $212,217
Training and services 28,674 18,098 54,615 33,926
--------- --------- --------- ----------
Total subscription,
training and services
revenue 164,383 127,270 321,018 246,143
--------- --------- --------- ----------
Cost of revenue:
Subscriptions 9,720 8,492 18,677 16,093
Training and services 17,788 11,572 35,260 22,235
--------- --------- --------- ----------
Total cost of
subscription,
training and services
revenue 27,508 20,064 53,937 38,328
--------- --------- --------- ----------
Total gross profit 136,875 107,206 267,081 207,815
Operating expense:
Sales and marketing 59,566 46,093 118,837 92,302
Research and development 31,728 23,384 60,639 45,171
General and
administrative 24,177 19,933 46,291 37,594
--------- --------- --------- ----------
Total operating expense 115,471 89,410 225,767 175,067
--------- --------- --------- ----------
Income from operations 21,404 17,796 41,314 32,748
Other income, net 14,778 14,030 24,798 27,608
Interest expense (1,530) (1,565) (3,116) (3,060)
--------- --------- --------- ----------
Income before provision
for income taxes 34,652 30,261 62,996 57,296
Provision for income taxes 13,514 12,104 24,568 22,918
--------- --------- --------- ----------
Net income $ 21,138 $ 18,157 $ 38,428 $ 34,378
========= ========= ========= ==========
Net income-diluted $ 22,032 $ 19,050 $ 40,215 $ 36,165
========= ========= ========= ==========
Net income per share:
Basic $ 0.11 $ 0.09 $ 0.20 $ 0.18
Diluted $ 0.10 $ 0.09 $ 0.18 $ 0.16
Weighted average shares
outstanding:
Basic 191,485 193,634 191,132 193,358
Diluted 220,039 221,688 219,472 221,559
Diluted net income per
share computation:
GAAP Net income, basic $ 21,138 $ 18,157 $ 38,428 $ 34,378
Interest expense on
convertible debentures,
net of related GAAP tax
effects 435 434 869 869
Amortization of debt
issuance costs, net of
related GAAP tax effects 459 459 918 918
-------- -------- -------- ---------
GAAP Net income, diluted $ 22,032 $ 19,050 $ 40,215 $ 36,165
========= ========= ========= ==========
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
August 31, February
29,
2008 2008
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 787,457 $ 677,720
Investments in debt and equity securities 274,268 312,442
Accounts receivable, net 110,898 127,002
Prepaid expenses and other current assets 69,201 75,192
----------- -----------
Total current assets 1,241,824 1,192,356
Property and equipment, net 70,803 68,557
Goodwill 359,989 340,314
Identifiable intangibles, net 110,562 93,823
Investments in debt securities 368,235 341,781
Other assets, net 63,973 43,151
----------- -----------
Total assets $2,215,386 $2,079,982
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,313 $ 17,341
Accrued expenses 51,658 43,260
Deferred revenue 346,900 339,088
Convertible debentures 570,000 570,000
Other current obligations 934 59
----------- -----------
Total current liabilities 978,805 969,748
Deferred lease credits 4,704 4,977
Long term deferred revenue 149,959 133,805
Other long term obligations 19,349 20,261
Convertible debentures - -
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 1,243,258 1,170,328
Accumulated earnings (deficit) 10,226 (28,202)
Treasury stock, at cost (202,312) (192,946)
Accumulated other comprehensive income 11,376 1,990
----------- -----------
Total stockholders' equity 1,062,569 951,191
----------- -----------
Total liabilities and stockholders' equity $2,215,386 $2,079,982
=========== ===========
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,
2008 2007 2008 2007
--------------------- ----------------------
Cash flows from operating
activities:
Net income $ 21,138 $ 18,157 $ 38,428 $ 34,378
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 9,828 8,219 18,925 15,453
Deferred income taxes 11,462 9,884 20,229 18,214
Excess tax benefits
from share-based
payment arrangements (15,489) (14,509) (24,456) (27,119)
Share-based
compensation expense 10,870 8,581 21,431 16,967
Gain on sale of
strategic equity
investments (4,996) - (4,996) -
Amortization of debt
issuance costs 752 752 1,504 1,505
Other 55 (39) (137) 543
Changes in operating
assets and liabilities
net of effects of
acquisitions:
Accounts receivable 2,018 4,162 21,338 245
Prepaid expenses and
other current assets (1,908) 736 (6,910) -
Accounts payable (2,404) 2,116 (7,974) (2,107)
Accrued expenses 7,816 (617) 9,802 (2,382)
Deferred revenue 15,261 11,858 30,714 33,421
Other assets (137) (99) (270) (193)
-------- --------- --------- ---------
Net cash provided by
operating activities 54,266 49,201 117,628 88,925
--------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investment
securities (26,059) (167,415) (331,705) (508,590)
Proceeds from sales and
maturities of
investment securities 133,282 193,478 349,816 408,958
Acquisitions of
businesses, net of cash
acquired (3,052) - (46,802) (11,784)
Proceeds from sale of
strategic equity
investments 5,568 - 5,568 -
Purchase of property and
equipment (4,430) (8,375) (13,952) (14,782)
Purchase of developed
software and other
intangible assets (727) (865) (2,342) (4,352)
--------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities 104,582 16,823 (39,417) (130,550)
--------- ---------- ---------- ----------
Cash flows from financing
activities:
Excess tax benefits from
share-based payment
arrangements 15,489 14,509 24,456 27,119
Proceeds from exercise
of common stock options 5,342 5,455 16,789 8,530
Purchase of treasury
stock (219) (136) (9,366) (136)
Structured stock
repurchase - - 1,989 -
Proceeds from other
borrowings - - - 2,898
Payments on other
borrowings (66) (90) (23) (757)
--------- ---------- ---------- ----------
Net cash provided by
financing activities 20,546 19,738 33,845 37,654
--------- ---------- ---------- ----------
Effect of foreign
currency exchange rates
on cash and cash
equivalents (2,477) 1,473 (2,319) 1,351
Net increase (decrease)
in cash and cash
equivalents 176,917 87,235 109,737 (2,620)
Cash and cash equivalents
at beginning of the
period 610,540 437,384 677,720 527,239
--------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $787,457 $ 524,619 $ 787,457 $ 524,619
========= ========== ========== ==========
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 Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
-------------------- ---------------------
Cost of revenue $ 643 $ 571 $ 1,324 $ 1,153
Sales and marketing 2,205 2,437 6,202 4,950
Research and development 3,547 2,118 6,054 4,243
General and
administration 4,475 3,455 7,851 6,621
--------- --------- --------- ----------
Total stock based
compensation expense $10,870 $ 8,581 $21,431 $16,967
========= ========= ========= ==========
Reconciliation of GAAP
results to non-GAAP
adjusted results
Three Months Ended Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
-------------------- ---------------------
GAAP net income $21,138 $18,157 $38,428 $34,378
GAAP provision for income
taxes 13,514 12,104 24,568 22,918
--------- --------- --------- ----------
GAAP income before
provision for income
taxes $34,652 $30,261 $62,996 $57,296
Add: Non-cash share-based
compensation expense per
FAS 123R 10,870 8,581 21,431 16,967
--------- --------- --------- ----------
Non-GAAP adjusted income
before provision for
income taxes $45,522 $38,842 $84,427 $74,263
Non-GAAP cash provision
for income taxes $ 2,276 $ 1,942 $ 4,221 $ 3,713
--------- --------- --------- ----------
Non-GAAP adjusted net
income $43,246 $36,900 $80,206 $70,550
========= ========= ========= ==========
Non-GAAP adjusted net
income-diluted $44,638 $38,292 $82,990 $73,334
========= ========= ========= ==========
Non-GAAP adjusted net
income per share:
Basic $ 0.23 $ 0.19 $ 0.42 $ 0.36
Diluted $ 0.20 $ 0.17 $ 0.38 $ 0.33
Non-GAAP diluted net
income per share
computation:
Non-GAAP adjusted net
income $43,246 $36,900 $80,206 $70,550
Interest expense on
convertible debentures,
net of related 5% cash
tax effects 677 677 1,354 1,354
Amortization of debt
issuance costs, net of
related 5% cash tax
effects 715 715 1,430 1,430
--------- --------- --------- ----------
Non-GAAP adjusted net
income-diluted $44,638 $38,292 $82,990 $73,334
========= ========= ========= ==========
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 Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
------------------- ---------------------
GAAP Gross profit $136,875 $107,206 $267,081 $207,815
Add: Non-cash share-based
compensation expense per
FAS 123R 643 571 1,324 1,153
-------- -------- -------- ----------
Non-GAAP gross profit $137,518 $107,777 $268,405 $208,968
-------- -------- -------- ----------
Non-GAAP gross margin 84% 85% 84% 85%
Three Months Ended Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
-------------------- ---------------------
GAAP operating expenses $115,471 $ 89,410 $225,767 $175,067
Deduct: Non-cash share-
based compensation
expense per FAS 123R (10,227) (8,010) (20,107) (15,814)
--------- --------- --------- ----------
Non-GAAP adjusted
operating expenses $105,244 $ 81,400 $205,660 $159,253
--------- --------- --------- ----------
Three Months Ended Six Months Ended
-------------------- ---------------------
August 31, August 31, August 31, August 31,
2008 2007 2008 2007
-------------------- ---------------------
GAAP operating income $ 21,404 $ 17,796 $ 41,314 $ 32,748
Add: Non-cash share-based
compensation expense per
FAS 123R 10,870 8,581 21,431 16,967
--------- --------- --------- ----------
Non-GAAP adjusted
operating income $ 32,274 $ 26,377 $ 62,745 $ 49,715
--------- --------- --------- ----------
Non-GAAP adjusted
operating margin 19.6% 20.7% 19.5% 20.2%
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.