- First quarter total revenue of $481 million, up 14% year-over-year
- First quarter subscription revenue of $425 million, up 14% year-over-year
- First quarter operating cash flow of $209 million, up 27% 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 2016 first quarter ended May 31, 2015.
Total revenue for the quarter was $481 million, an increase of 14% in U.S. dollars from the year ago quarter, and 22% measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $425 million, up 14% in U.S. dollars year-over-year, or 23% measured in constant currency. Total revenue for the first quarter of fiscal 2016 included an additional $5 million of subscription revenue earned from Red Hat’s Certified Cloud Providers (CCP). This one-time adjustment results from a change in our ability to estimate revenue earned through the CCP program.
“Our solid start to fiscal year 2016 was evidenced by strong constant currency revenue growth of over 20%,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “This strong growth reflects in part the demand for our open, hybrid cloud technologies across four footprints: bare metal, virtualization, private cloud and public cloud deployments. Red Hat’s portfolio of technologies becomes increasingly strategic to customers who are looking to expand their capabilities and agility to build and deploy applications across these data center footprints.”
“We delivered Q1 results which exceeded the high-end of our guidance for total revenue, non-GAAP operating margin and non-GAAP EPS before the adjustment which added the incremental $5 million of earned revenue from our CCP program,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.
GAAP operating income for the first quarter was $71 million, up 39% year-over-year. After adjusting for stock compensation, amortization expenses and transaction costs related to business combinations, as detailed in the tables below, non-GAAP operating income for the first quarter was $113 million, up 28% year-over-year. For the first quarter, GAAP operating margin was 14.7% and non-GAAP operating margin was 23.6%.
GAAP net income for the quarter was $48 million, or $0.26 per diluted share, compared with $38 million, or $0.20 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 convertible debt, as detailed in the tables below, non-GAAP net income for the quarter was $81 million, or $0.44 per diluted share, as compared to $64 million, or $0.34 per diluted share, in the year ago quarter. Non-GAAP diluted weighted average shares outstanding excludes any dilution resulting from the convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions. Both GAAP and non-GAAP earnings per diluted share benefited from the one-time earned revenue adjustment by approximately $0.02 in the first quarter of fiscal 2016.
Operating cash flow was $209 million for the first quarter, an increase of 27% on a year-over-year basis. At quarter end, the company’s total deferred revenue balance was $1.44 billion, an increase of 13% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2015 was $1.97 billion.
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.
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RED HAT, INC. | |||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
(Unaudited) | |||||||||||||
(In thousands - except per share amounts) | |||||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Revenue: | |||||||||||||
Subscriptions | $424,793 | $371,968 | |||||||||||
Training and services | 56,208 | 51,786 | |||||||||||
Total subscription, training and services revenue | 481,001 | 423,754 | |||||||||||
Cost of revenue: | |||||||||||||
Subscriptions | 29,846 | 27,760 | |||||||||||
Training and services | 41,551 | 36,683 | |||||||||||
Total cost of subscription, training and services revenue | 71,397 | 64,443 | |||||||||||
Total gross profit | 409,604 | 359,311 | |||||||||||
Operating expense: | |||||||||||||
Sales and marketing | 198,872 | 176,838 | |||||||||||
Research and development | 97,431 | 89,939 | |||||||||||
General and administrative | 42,371 | 41,571 | |||||||||||
Total operating expense | 338,674 | 308,348 | |||||||||||
Income from operations | 70,930 | 50,963 | |||||||||||
Interest income | 2,715 | 1,842 | |||||||||||
Interest expense | 5,715 | 53 | |||||||||||
Other income (expense), net | (203) | 410 | |||||||||||
Income before provision for income taxes | 67,727 | 53,162 | |||||||||||
Provision for income taxes | 19,641 | 15,417 | |||||||||||
Net income | $48,086 | $37,745 | |||||||||||
Net income per share: | |||||||||||||
Basic | $0.26 | $0.20 | |||||||||||
Diluted | $0.26 | $0.20 | |||||||||||
Weighted average shares outstanding: | |||||||||||||
Basic | 183,131 | 189,372 | |||||||||||
Diluted | 186,175 | 191,457 |
RED HAT, INC. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands) | ||||||||||
ASSETS | ||||||||||
May 31, | February 28, | |||||||||
2015 | 2015 (1) | |||||||||
(Unaudited) | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $990,922 | $1,047,473 | ||||||||
Investments in debt and equity securities | 192,818 | 215,254 | ||||||||
Accounts receivable, net | 284,582 | 468,021 | ||||||||
Deferred tax assets, net | 81,782 | 86,796 | ||||||||
Prepaid expenses | 149,163 | 150,715 | ||||||||
Other current assets | 1,647 | 1,980 | ||||||||
Total current assets | 1,700,914 | 1,970,239 | ||||||||
Property and equipment, net | 168,391 | 172,151 | ||||||||
Goodwill | 924,735 | 927,060 | ||||||||
Identifiable intangibles, net | 130,722 | 134,276 | ||||||||
Investments in debt securities | 784,734 | 546,016 | ||||||||
Other assets, net | 50,784 | 53,243 | ||||||||
Total assets | $3,760,280 | $3,802,985 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued expenses | $176,965 | $237,733 | ||||||||
Deferred revenue | 1,066,254 | 1,095,115 | ||||||||
Other current obligations | 1,767 | 1,844 | ||||||||
Total current liabilities | 1,244,986 | 1,334,692 | ||||||||
Convertible notes | 720,001 | 715,402 | ||||||||
Long term deferred revenue | 369,865 | 387,213 | ||||||||
Other long term obligations | 76,005 | 77,340 | ||||||||
Stockholders' equity: | ||||||||||
Common stock | 23 | 23 | ||||||||
Additional paid-in capital | 2,058,046 | 1,963,851 | ||||||||
Retained earnings | 948,459 | 900,373 | ||||||||
Treasury stock, at cost | (1,590,501) | (1,515,288) | ||||||||
Accumulated other comprehensive loss | (66,604) | (60,621) | ||||||||
Total stockholders' equity | 1,349,423 | 1,288,338 | ||||||||
Total liabilities and stockholders' equity | $3,760,280 | $3,802,985 | ||||||||
(1) Derived from audited financial statements | ||||||||||
RED HAT, INC. | |||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||
(Unaudited) | |||||||||||||
(In thousands) | |||||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Cash flows from operating activities: | |||||||||||||
Net income | $48,086 | $37,745 | |||||||||||
Adjustments to reconcile net income to net cash provided by | |||||||||||||
operating activities: | |||||||||||||
Depreciation and amortization | 18,547 | 18,924 | |||||||||||
Share-based compensation expense | 36,522 | 28,714 | |||||||||||
Deferred income taxes | 1,914 | 2,930 | |||||||||||
Net amortization of bond premium on available-for-sale debt securities | 2,597 | 2,033 | |||||||||||
Accretion of debt discount and amortization of debt issuance costs | 5,195 | - | |||||||||||
Other | 830 | (948) | |||||||||||
Changes in operating assets and liabilities net of effects of acquisitions: | |||||||||||||
Accounts receivable | 179,387 | 96,580 | |||||||||||
Prepaid expenses | (427) | (5,189) | |||||||||||
Accounts payable and accrued expenses | (52,346) | 2,655 | |||||||||||
Deferred revenue | (31,562) | (19,749) | |||||||||||
Other | 15 | 991 | |||||||||||
Net cash provided by operating activities | 208,758 | 164,686 | |||||||||||
Cash flows from investing activities: | |||||||||||||
Purchase of available-for-sale debt securities | (406,211) | (268,574) | |||||||||||
Proceeds from sales and maturities of available-for-sale debt securities | 182,583 | 269,431 | |||||||||||
Acquisition of businesses, net of cash acquired | - | (151,621) | |||||||||||
Purchase of other intangible assets | (3,929) | (553) | |||||||||||
Purchase of property and equipment | (10,696) | (8,594) | |||||||||||
Other | (2,000) | 3,472 | |||||||||||
Net cash used in investing activities | (240,253) | (156,439) | |||||||||||
Cash flows from financing activities: | |||||||||||||
Excess tax benefits from share-based payment arrangements | 6,419 | 986 | |||||||||||
Proceeds from exercise of common stock options | 2,109 | 45 | |||||||||||
Purchase of treasury stock | - | (80,033) | |||||||||||
Payments related to net settlement of employee share-based compensation awards | (25,211) | (13,729) | |||||||||||
Payments on other borrowings | (351) | (355) | |||||||||||
Net cash used in financing activities | (17,034) | (93,086) | |||||||||||
Effect of foreign currency exchange rates on cash and cash equivalents | (8,022) | 2,245 | |||||||||||
Net decrease in cash and cash equivalents | (56,551) | (82,594) | |||||||||||
Cash and cash equivalents at beginning of the period | 1,047,473 | 646,742 | |||||||||||
Cash and cash equivalents at end of period | $990,922 | $564,148 | |||||||||||
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 | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Cost of revenue | $3,727 | $3,118 | |||||||||||
Sales and marketing | 15,412 | 10,238 | |||||||||||
Research and development | 10,874 | 8,864 | |||||||||||
General and administration | 6,509 | 6,494 | |||||||||||
Total share-based compensation expense | $36,522 | $28,714 | |||||||||||
Amortization of intangible assets expense included in Consolidated Statements of Operations: | |||||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Cost of revenue | $2,573 | $2,615 | |||||||||||
Sales and marketing | 2,005 | 1,582 | |||||||||||
Research and development | 250 | 959 | |||||||||||
General and administration | 1,052 | 1,428 | |||||||||||
Total amortization of intangible assets expense | $5,880 | $6,584 | |||||||||||
Non-cash interest expense from accretion of debt discount included in Consolidated Statements of Operations: | |||||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Total non-cash interest expense from accretion of debt discount | $4,599 | - | |||||||||||
Transaction costs related to business combinations included in Consolidated Statements of Operations: | |||||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
Transaction costs related to business combinations | - | $1,991 | |||||||||||
Three Months Ended | |||||||||||||
May 31, | May 31, | ||||||||||||
2015 | 2014 | ||||||||||||
GAAP net income | $48,086 | $37,745 | |||||||||||
Provision for income taxes | 19,641 | 15,417 | |||||||||||
GAAP income before provision for income taxes | $67,727 | $53,162 | |||||||||||
Add: Non-cash share-based compensation expense | 36,522 | 28,714 | |||||||||||
Add: Amortization of intangible assets | 5,880 | 6,584 | |||||||||||
Add: Non-cash interest expense from accretion of debt discount | 4,599 | - | |||||||||||
Add: Transaction costs related to business combinations | - | 1,991 | |||||||||||
Non-GAAP adjusted income before provision for income taxes | $114,728 | $90,451 | |||||||||||
Provision for income taxes | 33,271 | 26,231 | |||||||||||
Non-GAAP adjusted net income (basic and diluted) | $81,457 | $64,220 | |||||||||||
Non-GAAP adjusted diluted weighted average shares outstanding: | |||||||||||||
GAAP diluted weighted average shares outstanding | 186,175 | 191,457 | |||||||||||
Dilution offset from convertible note hedge transactions | (51) | - | |||||||||||
Non-GAAP diluted weighted average shares outstanding | 186,124 | 191,457 | |||||||||||
Non-GAAP adjusted net income per share: | |||||||||||||
Basic | $0.44 | $0.34 | |||||||||||
Diluted | $0.44 | $0.34 | |||||||||||
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 | |||||||||||||||
May 31, | May 31, | ||||||||||||||
2015 | 2014 | ||||||||||||||
GAAP gross profit | $409,604 | $359,311 | |||||||||||||
Add: Non-cash share-based compensation expense | 3,727 | 3,118 | |||||||||||||
Add: Amortization of intangible assets | 2,573 | 2,615 | |||||||||||||
Non-GAAP gross profit | $415,904 | $365,044 | |||||||||||||
Non-GAAP gross margin | 86.5% | 86.1% | |||||||||||||
Three Months Ended | |||||||||||||||
May 31, | May 31, | ||||||||||||||
2015 | 2014 | ||||||||||||||
GAAP operating expenses | $338,674 | $308,348 | |||||||||||||
Deduct: Non-cash share-based compensation expense | (32,795) | (25,596) | |||||||||||||
Deduct: Amortization of intangible assets | (3,307) | (3,969) | |||||||||||||
Deduct: Transaction costs related to business combinations | - | (1,991) | |||||||||||||
Non-GAAP adjusted operating expenses | $302,572 | $276,792 | |||||||||||||
Three Months Ended | |||||||||||||||
May 31, | May 31, | ||||||||||||||
2015 | 2014 | ||||||||||||||
GAAP operating income | $70,930 | $50,963 | |||||||||||||
Add: Non-cash share-based compensation expense | 36,522 | 28,714 | |||||||||||||
Add: Amortization of intangible assets | 5,880 | 6,584 | |||||||||||||
Add: Transaction costs related to business combinations | - | 1,991 | |||||||||||||
Non-GAAP adjusted operating income | $113,332 | $88,252 | |||||||||||||
Non-GAAP adjusted operating margin | 23.6% | 20.8% | |||||||||||||
Three Months Ended | |||||||||||||||
May 31, | May 31, | Year-Over-Year | |||||||||||||
2015 | 2014 | Growth Rate | |||||||||||||
GAAP subscription revenue | $424,793 | $371,968 | 14.2% | ||||||||||||
Adjustment for currency impact | 31,205 | - | |||||||||||||
Non-GAAP subscription revenue on a constant currency basis | $455,998 | $371,968 | 22.6% | ||||||||||||
GAAP training and services revenue | $56,208 | $51,786 | 8.5% | ||||||||||||
Adjustment for currency impact | 5,003 | - | |||||||||||||
Non-GAAP training and services revenue on a constant currency basis | $61,211 | $51,786 | 18.2% | ||||||||||||
GAAP total subscription, training and services revenue | $481,001 | $423,754 | 13.5% | ||||||||||||
Adjustment for currency impact | 36,208 | - | |||||||||||||
Non-GAAP total subscription, training and services revenue on a constant currency basis | $517,209 | $423,754 | 22.1% | ||||||||||||
- 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 a 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.
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