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Red Hat Reports Third Quarter Results

Revenue of $236 million, up 21% from the prior year GAAP operating income up 92%, non-GAAP operating income up 26% from the prior year Deferred revenue of $685 million, up 11% from the prior year Operating Cash Flow of $71 million, up 31% from the prior y

RALEIGH, N.C. -

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2011 third quarter ended November 30, 2010.

Total revenue for the quarter was $235.6 million, an increase of 21% from the year ago quarter. Subscription revenue for the quarter was $198.8 million, up 21% year-over-year.

"Strong market demand and sales execution, combined with a compelling value proposition, led to organic billings growth of over 20%, or $262 million. Also in Q3, we were particularly proud that Red Hat was recognized by CIOs for the seventh consecutive year as one of the top IT vendors delivering value according to CIO Insight Magazine Vendor Value survey." stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "In addition to delivering a compelling value proposition, we continued to drive innovation for our customers' data center needs. In November, we launched the latest version of our flagship operating system, Red Hat Enterprise Linux 6, giving customers a great platform for next generation architectures such as virtualization and cloud computing."

GAAP operating income for the third quarter was $38.0 million up 92% year-over-year. GAAP operating income in the year ago quarter was $19.8 million after a charge of $8.8 million for a litigation settlement. After adjusting for stock compensation, amortization expenses and the charge for a litigation settlement in the prior year as detailed in the tables below, non-GAAP operating income for the third quarter was $58.0 million, up 26% year-over-year.

Net income for the quarter was $26.0 million, or $0.13 per diluted share, compared with $16.4 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP net income for the quarter was $39.1 million, or $0.20 per diluted share, compared to $33.5 million, or $0.17 per diluted share in the year ago quarter, after adjusting for stock compensation, amortization expenses and the charge for a litigation settlement in the prior year as detailed in the tables below.

Operating cash flow totaled $70.8 million, as compared to $54.1 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $685.2 million, an increase of 11% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2010 was $1.1 billion.

"Top line growth of 21% and even faster operating income growth, contributed to a 31% increase in operating cash flow," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We are well positioned at the confluence of several hot areas of IT; open source, virtualization and cloud computing. In addition, we are executing consistently and we are making focused investments in growth initiatives. For example, in November we acquired Makara, a developer of deployment and management solutions for applications in the cloud. Makara's technologies will accelerate the development of Red Hat's Platform-as-a-Service (PaaS) solution as part of our Cloud Foundations portfolio, one of our key growth initiatives."

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.

About Red Hat, Inc.

Red Hat, the world's leading provider of open source solutions and an S&P 500 company, is headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs ranked Red Hat as one of the top vendors delivering value in Enterprise Software for seven 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 virtualization, applications, management and Services Oriented Architecture (SOA) solutions, including Red Hat Enterprise Virtualization and JBoss Enterprise Middleware. 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 delays or reductions in information technology spending, the effects of industry consolidation, uncertainty and adverse results in litigation and related settlements, the integration of acquisitions and the ability to market successfully acquired technologies 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; 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 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.

©2010 Red Hat, Inc. Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

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,

       2010 2009 2010 2009
Revenue:       
              
  Subscriptions$198,842 $164,432 $564,101 $469,496
  Training and services36,734 29,914 100,380 82,872
              
              
    Total subscription, training and services revenue235,576 194,346 664,481 552,368
              
Cost of revenue:       
              
  Subscriptions13,336 11,010 38,256 32,033
  Training and services26,408 18,588 70,427 52,474
              
              
    Total cost of subscription, training and services revenue39,744 29,598 108,683 84,507
              
              
 Total gross profit195,832 164,748 555,798 467,861
              
Operating expense:       
 Sales and marketing85,138 71,498 239,136 202,242
 Research and development43,083 38,605 126,102 110,068
 General and administrative29,655 26,102 84,294 74,411
 Litigation Settlement- 8,750 - 8,750
              
  Total operating expense157,876 144,955 449,532 395,471
              
Income from operations37,956 19,793 106,266 72,390
 Interest income1,608 2,206 5,046 8,161
 Other income, net462 3,253 2,140 6,442
              
              
Income before provision for income taxes40,026 25,252 113,452 86,993
Provision for income taxes14,009 8,838 39,708 23,128
              
Net income$26,017 $16,414 $73,744 $63,865
              
Net income-diluted$26,017 $16,414 $73,744 $63,865
              
Net income per share:       
 Basic$0.14 $0.09 $0.39 $0.34
 Diluted$0.13 $0.08 $0.38 $0.33
              
Weighted average shares outstanding:       
 Basic191,296 187,450 189,410 187,823
 Diluted196,908 193,733 195,723 193,366
         
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
           
ASSETS
        

November 30,

 

February 28,

        2010 2010
        (Unaudited)  
Current assets:    
 Cash and cash equivalents $594,914 $388,118
 Investments in debt and equity securities 250,528 372,656
 Accounts receivable, net 151,612 139,436
 Deferred tax assets, net 37,004 57,951
 Prepaid expenses 53,374 44,116
 Other current assets 954 842
           
  Total current assets 1,088,386 1,003,119
           
 Property and equipment, net 74,860 71,708
 Goodwill 463,552 438,749
 Identifiable intangibles, net 112,980 108,213
 Investments in debt securities 251,538 209,411
 Other assets, net 37,397 39,672
           
  Total assets $2,028,713 $1,870,872
           
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:    
 Accounts payable $19,101 $16,483
 Accrued expenses 85,959 68,334
 Deferred revenue 509,192 480,572
 Other current obligations 638 878
           
  Total current liabilities 614,890 566,267
           
 Deferred lease credits 4,356 4,184
 Long term deferred revenue 176,043 165,288
 Other long term obligations 23,468 24,081
Stockholders' equity:    
 Common stock 22 22
 Additional paid-in capital 1,554,214 1,444,848
 Retained earnings 211,516 137,772
 Treasury stock, at cost (552,001) (472,646)
 Accumulated other comprehensive (loss) income(3,795) 1,056
           
  Total stockholders' equity 1,209,956 1,111,052
           
  Total liabilities and stockholders' equity $2,028,713 $1,870,872
       
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,
       2010 2009 2010 2009
              
Cash flows from operating activities:       
Net income$26,017 $16,414 $73,744 $63,865

Adjustments to reconcile net income to net cash

provided by operating activities:

       
       
 Depreciation and amortization11,829 11,595 35,240 33,847
 Share-based compensation expense15,340 12,557 44,189 34,246
 Deferred income taxes7,911 9,578 29,697 15,066
 Excess tax benefits from share-based payment arrangements(10,800) (9,524) (31,999) (27,280)
 Gain on sale of available-for-sale equity securities(1,726) (4,584) (2,843) (8,247)
 Other673 (198) 789 (205)
Changes in operating assets and liabilities net of effects of acquisitions:       
 Accounts receivable(23,762) (21,742) (11,030) (1,130)
 Prepaid assets(4,613) 1,810 (9,357) 5,180
 Accounts payable5,544 (843) 2,662 6,944
 Accrued expenses16,343 14,651 24,595 16,836
 Deferred revenue26,803 23,446 39,184 35,963
 Other1,261 989 877 2,273
              
 Net cash provided by operating activities70,820 54,149 195,748 177,358
              
Cash flows from investing activities:       
 Purchase of available-for-sale debt securities(314,729) (245,788) (535,093) (534,260)
 Proceeds from sales and maturities of available-for-sale debt securities191,259 93,089 605,388 299,193
 Proceeds from sales of available-for-sale equity securities1,843 4,312 3,000 8,371
 Acquisitions of businesses, net of cash acquired(31,381) - (31,381) -
 Net purchase of strategic equity investments- (1,368) - (1,368)
 Purchase of developed technologies and other intangible assets(9,481) (847) (12,426) (2,917)
 Purchase of property and equipment(10,079) (8,655) (25,171) (21,318)
              
 Net cash provided by (used in) investing activities(172,568) (159,257) 4,317 (252,299)
              
Cash flows from financing activities:       
 Excess tax benefits from share-based payment arrangements10,800 9,524 31,999 27,280
 Proceeds from exercise of common stock options24,654 44,985 80,353 63,574
 Purchase of treasury stock- (52,289) (79,355) (146,246)
 Payments related to net settlement of employee share-based compensation awards(14,899) (6,754) (23,089) (9,054)
 Payments on other borrowings- - (877) (900)
 Proceeds from other borrowings335 - 335 -
              
 Net cash provided by (used in) financing activities20,890 (4,534) 9,366 (65,346)
              
Effect of foreign currency exchange rates on cash and cash equivalents6,545 6,299 (2,635) 14,448
Net increase (decrease) in cash and cash equivalents(74,313) (103,343) 206,796 (125,839)
Cash and cash equivalents at beginning of the period669,227 493,052 388,118 515,548
              
Cash and cash equivalents at end of period$594,914 $389,709 $594,914 $389,709
        
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,
       2010 2009 2010 2009
              
 Cost of revenue$1,607 $916 $4,168 $2,475
 Sales and marketing4,922 3,627 13,469 9,875
 Research and development3,960 3,239 11,395 9,588
 General and administration4,851 4,775 15,157 12,308
 Total share-based compensation expense$15,340 $12,557 $44,189 $34,246
              
              
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,
       2010 2009 2010 2009
              
 Cost of revenue$887 $989 $2,295 $2,938
 Sales and marketing2,076 2,293 6,237 6,908
 Research and development925 925 2,775 2,776
 General and administration839 811 2,494 2,411
 Total amortization of intangible assets expense$4,727 $5,018 $13,801 $15,033
              
              
Class action litigation settlement expense included in Consolidated Statements of Operations:
              
       Three Months Ended Nine Months Ended
       November 30, November 30, November 30, November 30,
       2010 2009 2010 2009
              
 Litigation settlement$0 $8,750 $0 $8,750
              
              
       Three Months Ended Nine Months Ended
       November 30, November 30, November 30, November 30,
       2010 2009 2010 2009
              
GAAP net income$26,017 $16,414 $73,744 $63,865
              
Provision for income taxes14,009 8,838 39,708 23,128
              
GAAP income before provision for income taxes$40,026 $25,252 $113,452 $86,993
              
Add: Non-cash share-based compensation expense15,340 12,557 44,189 34,246
Add: Amortization of intangible assets4,727 5,018 13,801 15,033
Add: Litigation settlement- 8,750 - 8,750
              
Non-GAAP adjusted income before provision for income taxes$60,093 $51,577 $171,442 $145,022
              
Provision for income taxes (1)21,033 18,052 60,005 43,439
              
Non-GAAP adjusted net income$39,060 $33,525 $111,437 $101,583
              
Non-GAAP adjusted net income-diluted$39,060 $33,525 $111,437 $101,583
              
Non-GAAP adjusted net income per share:       
 Basic$0.20 $0.18 $0.59 $0.54
 Diluted$0.20 $0.17 $0.57 $0.53
              
              
(1) Provision for income taxes:       
Non-GAAP adjusted net income before income tax provision$60,093 $51,577 $171,442 $145,022
 Estimated annual effective tax rate35% 35% 35% 35%
Non-GAAP provision for income taxes before discrete tax benefit$21,033 $18,052 $60,005 $50,758
 Discrete tax benefit

-

 - - 7,319
Provision for income taxes on Non-GAAP adjusted net income$21,033 $18,052 $60,005 $43,439
        
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,
       2010 2009 2010 2009
              
GAAP gross profit$195,832 $164,748 $555,798 $467,861
              
Add: Non-cash share-based compensation expense1,607 916 4,168 2,475
Add: Amortization of intangible assets887 989 2,295 2,938
              
Non-GAAP gross profit$198,326 $166,653 $562,261 $473,274
              
Non-GAAP gross margin84% 86% 85% 86%
              
              
       Three Months Ended Nine Months Ended
       November 30, November 30, November 30, November 30,
       2010 2009 2010 2009
              
GAAP operating expenses$157,876 $144,955 $449,532 $395,471
              
Deduct: Non-cash share-based compensation expense(13,733) (11,641) (40,021) (31,771)
Deduct: Amortization of intangible assets(3,840) (4,029) (11,506) (12,095)
Deduct: Litigation settlement- (8,750) - (8,750)
              
Non-GAAP adjusted operating expenses$140,303 $120,535 $398,005 $342,855
              
              
       Three Months Ended Nine Months Ended
       November 30, November 30, November 30, November 30,
       2010 2009 2010 2009
              
GAAP operating income$37,956 $19,793 $106,266 $72,390
              
Add: Non-cash share-based compensation expense15,340 12,557 44,189 34,246
Add: Amortization of intangible assets4,727 5,018 13,801 15,033
Add: Litigation settlement- 8,750 - 8,750
              
Non-GAAP adjusted operating income$58,023 $46,118 $164,256 $130,419
              
Non-GAAP adjusted operating margin24.6% 23.7% 24.7% 23.6%
  • 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.