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Press release

Red Hat Reports Third Quarter (Q3FY15) Results

RALEIGH, CAROLINE DU NORD

 

"Cloud computing and big data trends are driving increased demand for open source technologies. We believe our leadership position in the open source industry and broad portfolio of Open Hybrid Cloud technologies creates a strong position for Red Hat to capture market share in the cloud-enabled data center."

Jim Whitehurstpresident and CEO
  • Total revenue of $456 million, up 15% year-over-year
  • Subscription revenue of $395 million, up 15% year-over-year
  • Third quarter operating cash flow of $133 million, up 40% 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 third quarter ended November 30, 2014.

Total revenue for the quarter was $456 million, an increase of 15% in U.S. dollars from the year ago quarter, and 18% measured in constant currency.  Constant currency references in this release are as detailed in the tables below.  Subscription revenue for the quarter was $395 million, up 15% in U.S. dollars year-over-year, or 18% measured in constant currency.   

“Our strong Q3 results marked the eleventh straight quarter of mid-to-high teens revenue growth as we continued to reinforce and expand our strategic relationship with our customers,” said Jim Whitehurst, President and Chief Executive Officer of Red Hat.  “Cloud computing and big data trends are driving increased demand for open source technologies.  We believe our leadership position in the open source industry and broad portfolio of Open Hybrid Cloud technologies creates a strong position for Red Hat to capture market share in the cloud-enabled data center.”

GAAP operating income for the third quarter was $67 million, up 11% year-over-year.  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, non-GAAP operating income for the third quarter was $109 million, up 10% year-over-year.  For the third quarter, GAAP operating margin was 14.7% and non-GAAP operating margin was 23.8%.

GAAP net income for the quarter was $48 million, or $0.26 per diluted share, compared with $52 million, or $0.27 per diluted share, in the year ago quarter.  After adjusting for stock compensation, amortization expenses, transaction costs related to business combinations, and non-cash interest expense related to the convertible debt as detailed in the tables below, non-GAAP net income for the quarter was $79 million, or $0.42 per diluted share, as compared to $81 million, or $0.42 per diluted share, in the year ago quarter.  The year ago third quarter included a $4 million discrete tax benefit and cumulative adjustment that lowered last year’s estimated annual effective tax rate and increased last year’s Q3 GAAP EPS and non-GAAP EPS results by approximately $0.04 per share and $0.06 per share, respectively.   

Operating cash flow was $133 million for the third quarter, up 40% as compared to $95 million in the year ago quarter.  At quarter end, the company’s total deferred revenue balance was $1.30 billion, an increase of 16% on a year-over-year basis.  Total cash, cash equivalents and investments as of November 30, 2014 was $1.65 billion.  The company also completed a convertible debt offering of $805 million during the quarter.  The company used a portion of the proceeds to enter into convertible note hedge transactions for net cost of approximately $68 million and an accelerated stock repurchase transaction for $375 million which resulted in the delivery to the company during Q3 of approximately 5.3 million shares of its common stock.

“Outstanding sales execution in the third quarter drove strong performance across the board.  We excelled on virtually every key financial metric we track,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.  “We have had sequential quarterly revenue growth at Red Hat every quarter for 51 straight quarters.  The sales performance this quarter with large deals was exceptional, setting new records in number of deals over $5 million in a quarter and deals over $10 million in a Q3.  We believe the growing number and size of large deals reflects the increasingly strategic relationship that Red Hat is building with customers, in addition to customer demand for our broadening product portfolio.”

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   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
Revenue:                          
                           
  Subscriptions           $394,699   $342,770   $1,156,161   $985,279
  Training and services           61,196   53,766   169,387   148,939
                           
                           
    Total subscription, training and services revenue         455,895   396,536   1,325,548   1,134,218
                           
Cost of revenue:                          
                           
  Subscriptions           28,574   24,544   84,125   71,437
  Training and services           42,791   35,883   118,857   100,627
                           
                           
    Total cost of subscription, training and services revenue         71,365   60,427   202,982   172,064
                           
                           
  Total gross profit           384,530   336,109   1,122,566   962,154
                           
Operating expense:                          
  Sales and marketing           187,218   153,528   538,576   440,568
  Research and development           90,613   82,519   275,817   234,619
  General and administrative           39,502   39,270   125,786   111,807
  Facility exit costs           -   -   -   2,171
                           
                           
    Total operating expense         317,333   275,317   940,179   789,165
                           
Income from operations             67,197   60,792   182,387   172,989
  Interest income           2,196   1,579   6,048   4,608
  Interest expense           3,441   51   3,591   114
  Other income (expense), net           1,559   (389)   1,777   446
                           
                           
Income before provision for income taxes             67,511   61,931   186,621   177,929
Provision for income taxes             19,578   9,906   54,120   44,705
                           
Net income             $47,933   $52,025   $132,501   $133,224
                           
Net income per share:                          
  Basic           $0.26   $0.27   $0.71   $0.70
  Diluted           $0.26   $0.27   $0.70   $0.69
                           
Weighted average shares outstanding:                          
  Basic           185,039   189,514   187,533   190,024
  Diluted           187,674   191,365   190,081   192,049

 

 

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                     
ASSETS
                November 30,   February 28,
                2014   2014 (1)
                (Unaudited)    
Current assets:                    
  Cash and cash equivalents             $883,989   $646,742
  Investments in debt and equity securities             231,420   335,387
  Accounts receivable, net             354,870   360,594
  Deferred tax assets, net             106,282   108,264
  Prepaid expenses             126,827   118,387
  Other current assets             1,629   1,808
                     
      Total current assets         1,705,017   1,571,182
                     
  Property and equipment, net             173,599   173,917
  Goodwill             939,574   687,430
  Identifiable intangibles, net             144,176   133,399
  Investments in debt securities             531,112   505,300
  Other assets, net             54,393   35,391
                     
      Total assets         $3,547,871   $3,106,619
                     
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                    
  Accounts payable and accrued expenses             $229,272   $179,468
  Deferred revenue             941,441   966,832
  Other current obligations             1,908   1,786
                     
      Total current liabilities         1,172,621   1,148,086
                     
  Convertible notes             710,844   -
  Long term deferred revenue             358,684   322,365
  Other long term obligations             71,915   85,003
Stockholders' equity:                    
  Common stock             23   23
  Additional paid-in capital             1,928,179   1,891,848
  Retained earnings             852,673   720,172
  Treasury stock, at cost             (1,515,288)   (1,056,419)
  Accumulated other comprehensive loss             (31,780)   (4,459)
                     
      Total stockholders' equity         1,233,807   1,551,165
                     
      Total liabilities and stockholders' equity         $3,547,871   $3,106,619
                     
                     
      (1) Derived from audited financial statements              

 

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
Cash flows from operating activities:                          
Net income             $47,933   $52,025   $132,501   $133,224
Adjustments to reconcile net income to net cash provided by                          
operating activities:                          
  Depreciation and amortization           18,651   18,955   57,114   55,326
  Share-based compensation expense           33,623   30,190   98,942   83,196
  Deferred income taxes           (780)   (1,412)   3,125   9,608
  Net amortization of bond premium on available-for-sale debt securities           2,407   2,301   6,965   6,637
  Accretion of debt discount and amortization of debt issuance costs           3,085   -   3,085   -
  Other           (175)   438   (527)   485
Changes in operating assets and liabilities net of effects of acquisitions:                          
  Accounts receivable           (75,917)   (75,330)   2,314   (9,249)
  Prepaid expenses           (5,922)   (1,109)   (13,502)   (3,503)
  Accounts payable and accrued expenses           26,254   12,272   56,175   38,565
  Deferred revenue           83,912   56,019   57,955   40,999
  Other           (83)   805   1,264   610
                           
    Net cash provided by operating activities         132,988   95,154   405,411   355,898
                           
Cash flows from investing activities:                          
  Purchase of available-for-sale debt securities           (141,928)   (101,636)   (461,069)   (448,712)
  Proceeds from sales and maturities of available-for-sale debt securities           93,578   118,084   503,110   597,851
  Acquisition of businesses, net of cash acquired           (78,317)   -   (296,121)   -
  Purchase of other intangible assets           (2,160)   (682)   (3,911)   (13,203)
  Purchase of property and equipment           (12,201)   (13,327)   (35,085)   (61,833)
  Other           482   (150)   2,917   (2,084)
                           
    Net cash provided by (used in) investing activities         (140,546)   2,289   (290,159)   72,019
                           
Cash flows from financing activities:                          
  Excess tax benefits from share-based payment arrangements           3,488   3,428   4,897   9,071
  Proceeds from exercise of common stock options           465   223   1,154   1,311
  Purchase of treasury stock           (375,000)   (40,018)   (535,062)   (239,363)
  Payments related to net settlement of employee share-based compensation awards           (21,754)   (18,307)   (39,314)   (33,122)
  Proceeds from issuance of convertible notes, net of issuance costs           790,394   -   790,394   -
  Purchase of convertible note hedges           (148,040)   -   (148,040)   -
  Proceeds from issuance of warrants           79,776   -   79,776   -
  Payments on other borrowings           (402)   (362)   (2,392)   (979)
                           
    Net cash provided by (used in) financing activities         328,927   (55,036)   151,413   (263,082)
                           
  Effect of foreign currency exchange rates on cash and cash equivalents           (22,761)   2,910   (29,418)   (9,808)
  Net increase in cash and cash equivalents           298,608   45,317   237,247   155,027
  Cash and cash equivalents at beginning of the period           585,381   596,794   646,742   487,084
                           
Cash and cash equivalents at end of period             $883,989   $642,111   $883,989   $642,111

 

 

 

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   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
  Cost of revenue           $3,915   $2,922   $10,458   $8,861
  Sales and marketing           15,866   10,268   39,794   30,009
  Research and development           8,129   9,161   28,091   25,100
  General and administration           5,713   7,839   20,599   19,226
  Total share-based compensation expense           $33,623   $30,190   $98,942   $83,196
                           
                           
Amortization of intangible assets expense included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
  Cost of revenue           $2,995   $2,504   $8,097   $7,672
  Sales and marketing           1,958   2,479   5,533   6,395
  Research and development           250   959   2,167   2,877
  General and administration           1,439   1,288   4,473   4,028
  Total amortization of intangible assets expense           $6,642   $7,230   $20,270   $20,972
                           
                           
Non-cash interest expense from accretion of debt discount included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
  Total non-cash interest expense from accretion of debt discount           $2,734   -   $2,734   -
                           
Facility exit costs included in Consolidated Statements of Operations:                          
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
  Facility exit costs           -   -   -   $2,171
                           
                           
Transaction costs related to business combinations included in Consolidated Statements of Operations:                          
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
  Transaction costs related to business combinations           $1,061   -   $4,001   -
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
GAAP net income             $47,933   $52,025   $132,501   $133,224
                           
Provision for income taxes             19,578   9,906   54,120   44,705
                           
GAAP income before provision for income taxes             $67,511   $61,931   $186,621   $177,929
                           
Add: Non-cash share-based compensation expense             33,623   30,190   98,942   83,196
Add: Amortization of intangible assets             6,642   7,230   20,270   20,972
Add: Non-cash interest expense from accretion of debt discount             2,734   -   2,734   -
Add: Facility exit costs             -   -   -   2,171
Add: Transaction costs related to business combinations             1,061   -   4,001   -
                           
Non-GAAP adjusted income before provision for income taxes             $111,571   $99,351   $312,568   $284,268
                           
Provision for income taxes             32,356   18,474   90,645   73,949
                           
Non-GAAP adjusted net income (basic and diluted)             $79,215   $80,877   $221,923   $210,319
                           
Non-GAAP adjusted net income per share:                          
  Basic           $0.43   $0.43   $1.18   $1.11
  Diluted           $0.42   $0.42   $1.17   $1.10
                           
                           
(1) Provision for income taxes:                          
Non-GAAP adjusted net income before income tax provision             $111,571   $99,351   $312,568   $284,268
  Estimated annual effective tax rate           29.0%   22.8%   29.0%   27.5%
Non-GAAP provision for income taxes before discrete tax benefit             $32,356   $22,699   $90,645   $78,174
  Discrete tax benefit           -   4,225   -   4,225
Provision for income taxes on Non-GAAP adjusted net income             $32,356   $18,474   $90,645   $73,949

 

 

 

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   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
GAAP gross profit             $384,530   $336,109   $1,122,566   $962,154
                           
Add: Non-cash share-based compensation expense             3,915   2,922   10,458   8,861
Add: Amortization of intangible assets             2,995   2,504   8,097   7,672
                           
Non-GAAP gross profit             $391,440   $341,535   $1,141,121   $978,687
                           
Non-GAAP gross margin             85.9%   86.1%   86.1%   86.3%
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
GAAP operating expenses             $317,333   $275,317   $940,179   $789,165
                           
Deduct: Non-cash share-based compensation expense             (29,708)   (27,268)   (88,484)   (74,335)
Deduct: Amortization of intangible assets             (3,647)   (4,726)   (12,173)   (13,300)
Deduct: Facility exit costs             -   -   -   (2,171)
Deduct: Transaction costs related to business combinations             (1,061)   -   (4,001)   -
                           
Non-GAAP adjusted operating expenses             $282,917   $243,323   $835,521   $699,359
                           
                           
              Three Months Ended   Nine Months Ended
              November 30,   November 30,   November 30,   November 30,
              2014   2013   2014   2013
                           
GAAP operating income             $67,197   $60,792   $182,387   $172,989
                           
Add: Non-cash share-based compensation expense             33,623   30,190   98,942   83,196
Add: Amortization of intangible assets             6,642   7,230   20,270   20,972
Add: Facility exit costs             -   -   -   2,171
Add: Transaction costs related to business combinations             1,061   -   4,001   -
                           
Non-GAAP adjusted operating income             $108,523   $98,212   $305,600   $279,328
                           
Non-GAAP adjusted operating margin             23.8%   24.8%   23.1%   24.6%
                           
                           
              Three Months Ended        
              November 30,   November 30,   Year-Over-Year    
              2014   2013   Growth Rate    
                           
GAAP subscription revenue             $394,699   $342,770   15.1%    
Adjustment for currency impact             10,368   -        
Non-GAAP subscription revenue on a constant currency basis             $405,067   $342,770   18.2%    
                           
GAAP training and services revenue             $61,196   $53,766   13.8%    
Adjustment for currency impact             2,804   -        
Non-GAAP training and services revenue on a constant currency basis             $64,000   $53,766   19.0%    
                           
GAAP total subscription, training and services revenue             $455,895   $396,536   15.0%    
Adjustment for currency impact             13,172   -        
Non-GAAP total subscription, training and services revenue on a constant currency basis             $469,067   $396,536   18.3%    
                           
                           
              Nine Months Ended        
              November 30,   November 30,   Year-Over-Year    
              2014   2013   Growth Rate    
                           
GAAP subscription revenue             $1,156,161   $985,279   17.3%    
Adjustment for currency impact             7,836            
Non-GAAP subscription revenue on a constant currency basis             $1,163,997   $985,279   18.1%    
                           
GAAP training and services revenue             $169,387   $148,939   13.7%    
Adjustment for currency impact             4,327            
Non-GAAP training and services revenue on a constant currency basis             $173,714   $148,939   16.6%    
                           
GAAP total subscription, training and services revenue             $1,325,548   $1,134,218   16.9%    
Adjustment for currency impact             12,163            
Non-GAAP total subscription, training and services revenue on a constant currency basis             $1,337,711   $1,134,218   17.9%    

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.

Énoncés prévisionnels

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.