Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal quarter ended May 31, 2007. Red Hat's current fiscal year will end February 29, 2008.
Total revenue for the quarter was $118.9 million, an increase of 42% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $103.0 million, up 44% year-over-year and 7% sequentially.
Net income for the quarter was $16.2 million, or $0.08 per diluted share, compared with $13.8 million, or $0.07 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $33.7 million, or $0.16 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 $28.0 million, or $0.14 per diluted share, in the year ago period.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $52.3 million for the quarter. Total cash, cash equivalents, and investments as of May 31, 2007 were $1.2 billion. At quarter end, Red Hat's total deferred revenue balance was $363.1 million, an increase of 43% year-over-year and 7% sequentially.
Other highlights of the quarter included the following:
- Red Hat held its third annual Summit for customers, partners and the community.
- Red Hat launched version 5 of its flagship Red Hat Enterprise Linux operating system.
- Red Hat debuted its Service Oriented Architecture strategy, including the addition of data management solutions and establishing developer class and enterprise class editions of the JBoss solution set.
We started the quarter in high gear with the release of Red Hat Enterprise Linux 5 and followed with important launches for JBoss and our middleware strategy,
stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. We are pleased with our solid earnings performance as we executed on initiatives to continually garner market share and mind share in a rapidly growing market. Our investments in sales, marketing and R&D during the quarter set a solid foundation for the balance of the year.
Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. A live webcast of Red Hat's results will begin at 5:00 pm ET today and can be accessed by the general public at Red Hat's investor relations website at http://investors.redhat.com. A replay of the webcast will be available shortly after the live event will have ended.
About Red Hat, Inc.
Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with over 50 offices spanning the globe. CIOs have ranked Red Hat first for value in Enterprise Software for three consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat provides high-quality, low-cost 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; 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 a dependence on key personnel, as well as other factors contained in our most recent Annual Report on Form 10-K (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, 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
-------------------
May 31, May 31,
2007 2006
-------------------
Revenue:
Subscriptions $103,045 $ 71,492
Training and services 15,828 12,510
--------- ---------
Total subscription, training and services
revenue 118,873 84,002
--------- ---------
Cost of revenue:
Subscriptions 7,601 5,996
Training and services 10,663 7,449
--------- ---------
Total cost of subscription, training and
services revenue 18,264 13,445
--------- ---------
Total gross profit 100,609 70,557
Operating expense:
Sales and marketing 46,209 30,501
Research and development 21,787 13,815
General and administrative 17,661 13,629
--------- ---------
Total operating expense 85,657 57,945
--------- ---------
Income from operations 14,952 12,612
Other income, net 13,578 10,702
Interest expense (1,495) (1,484)
--------- ---------
Income before provision (benefit) for income
taxes 27,035 21,830
Provision (benefit) for income taxes 10,814 8,077
--------- ---------
Net income $ 16,221 $ 13,753
========= =========
Net income-diluted $ 17,100 $ 14,705
========= =========
Net income per share:
Basic $ 0.08 $ 0.07
Diluted $ 0.08 $ 0.07
Weighted average shares outstanding:
Basic 193,082 183,579
Diluted 221,407 214,325
Diluted net income per share computation:
GAAP Net income, basic $ 16,221 $ 13,753
Interest expense on convertible debentures, net
of related GAAP tax effects 428 463
Amortization of debt issuance costs, net of
related GAAP tax effects 451 489
-------- --------
GAAP Net income, diluted $ 17,100 $ 14,705
========= =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
May 31, February
28,
2007 2007
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 437,384 $ 527,239
Investments in debt securities 400,074 350,827
Accounts receivable, net 92,412 87,973
Prepaid expenses and other current assets 53,279 41,026
----------- -----------
Total current assets 983,149 1,007,065
Property and equipment, net 47,713 45,258
Goodwill 344,819 328,837
Identifiable intangibles, net 95,477 94,314
Investments in debt securities 353,626 278,028
Other assets, net 32,824 32,352
----------- -----------
Total assets $1,857,608 $1,785,854
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,958 $ 12,062
Accrued expenses 38,375 38,472
Deferred revenue 264,651 249,615
Other current obligations 345 214
----------- -----------
Total current liabilities 311,329 300,363
Deferred lease credits 5,141 5,235
Long term deferred revenue 98,407 89,020
Other long term obligations 23,801 -
Convertible debentures 570,000 570,000
Stockholders' equity:
Minority interest - -
Common stock 20 20
Additional paid-in capital 1,066,091 1,040,892
Deferred compensation - -
Accumulated deficit (88,648) (92,092)
Treasury stock, at cost (125,789) (125,789)
Accumulated other comprehensive loss (2,744) (1,795)
----------- -----------
Total stockholders' equity 848,930 821,236
----------- -----------
Total liabilities and stockholders' equity $1,857,608 $1,785,854
=========== ===========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
--------------------
May 31, May 31,
2007 2006
--------------------
Cash flows from operating activities:
Net income $ 16,221 $ 13,753
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,234 4,344
Deferred income taxes 8,330 5,411
Share-based compensation expense 8,386 7,626
Excess tax benefits from share-based payment
arrangements (12,610) (2,135)
Provision for doubtful accounts 582 501
Amortization of debt issuance costs 752 752
Other - (279)
Changes in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable (3,917) (3,492)
Prepaid expenses and other current assets (738) (1,299)
Accounts payable (4,223) 109
Accrued expenses (1,764) 1,550
Deferred revenue 21,564 25,457
Other assets (92) 75
---------- ---------
Net cash provided by operating activities 39,725 52,373
---------- ---------
Cash flows from investing activities:
Purchase of investment securities (341,175) (7,332)
Proceeds from sales and maturities of
investment securities 215,480 278,031
Acquisitions of businesses, net of cash
acquired (11,784) (1,911)
Purchase of property and equipment (6,407) (3,878)
Purchase of developed software and other
intangibles (3,488) -
---------- ---------
Net cash provided by (used in) investing
activities (147,374) 264,910
---------- ---------
Cash flows from financing activities:
Excess tax benefits from share-based payment
arrangements 12,610 2,135
Net proceeds from issuance of common stock
under Employee Stock Purchase Plan - 305
Proceeds from exercise of common stock
options 3,074 7,330
Purchase of treasury stock - (173)
Other borrowings, net 2,232 -
---------- ---------
Net cash provided by financing activities 17,916 9,597
---------- ---------
Effect of foreign currency exchange rates on
cash and cash equivalents (122) 2,490
Net increase (decrease) in cash and cash
equivalents (89,855) 329,370
Cash and cash equivalents at beginning of the
period 527,239 267,547
---------- ---------
Cash and cash equivalents at end of period $ 437,384 $596,917
========== =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
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
-----------------
May 31, May 31,
2007 2006
-----------------
Cost of revenue $ 582 $ 510
Sales and marketing 2,514 2,117
Research and development 2,125 1,497
General and administration 3,165 3,502
-------- --------
Total stock based compensation expense $ 8,386 $ 7,626
======== ========
Reconciliation of GAAP results to non-GAAP
adjusted results
Three Months
Ended
-----------------
May 31, May 31,
2007 2006
-----------------
GAAP net income $16,221 $13,753
GAAP provision for income taxes 10,814 8,077
------- -------
GAAP income before provision for income taxes $27,035 $21,830
Add: Share-based compensation per FAS 123R 8,386 7,626
-------- --------
Non-GAAP adjusted income before provision for
income taxes $35,421 $29,456
Non-GAAP cash provision for income taxes $ 1,771 $ 1,473
-------- --------
Non-GAAP adjusted net income $33,650 $27,983
======== ========
Non-GAAP adjusted net income-diluted $35,042 $29,375
======== ========
Non-GAAP adjusted net income per share:
Basic $ 0.17 $ 0.15
Diluted $ 0.16 $ 0.14
Non-GAAP diluted net income per share
computation:
Non-GAAP adjusted net income $33,650 $27,983
Interest expense on convertible debentures, net
of related 5% cash tax effects 677 677
Amortization of debt issuance costs, net of
related 5% cash tax effects 715 715
-------- --------
Non-GAAP adjusted net income-diluted $35,042 $29,375
======== ========
Reconciliation of GAAP cash flows from operating
activities to non-GAAP adjusted cash flows from
operating activities
Three Months
Ended
-----------------
May 31, May 31,
2007 2006
-----------------
GAAP net cash provided by operating activities $39,725 $52,373
Add: Excess tax benefits from share-based payment
arrangements 12,610 2,135
-------- --------
Non-GAAP net cash provided by operating
activities $52,335 $54,508
======== ========
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
------------------
May 31, May 31,
2007 2006
------------------
GAAP Gross profit $100,609 $70,557
Add: Non-cash share-based compensation per FAS
123R 582 510
--------- --------
Non-GAAP gross profit $101,191 $71,067
--------- --------
Non-GAAP gross margin 85% 85%
Three Months Ended
------------------
May 31, May 31,
2007 2006
------------------
GAAP operating expenses $ 85,657 $57,945
Deduct: Non-cash share-based compensation per
FAS 123R (7,804) (7,116)
--------- --------
Non-GAAP adjusted operating expenses $ 77,853 $50,829
--------- --------
Three Months Ended
------------------
May 31, May 31,
2007 2006
------------------
GAAP operating income $ 14,952 $12,612
Add: Non-cash share-based compensation per FAS
123R 8,386 7,626
--------- --------
Non-GAAP adjusted operating income $ 23,338 $20,238
--------- --------
Non-GAAP adjusted operating margin 19.6% 24.1%
- 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.
