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Red Hat Reports Second Quarter Results

RALEIGH, N.C. -
  • Total revenue of $374 million, up 16% year-over-year
  • Subscription revenue of $327 million, up 17% year-over-year
  • GAAP EPS of $0.21, up 17% year-over-year; non-GAAP EPS of $0.35, up 25% year-over-year
  • Operating cash flow of $119 million, up 15% year-over-year

Raleigh, NC – September 23, 2013 – Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2014 second quarter ended August 31, 2013.

Total revenue for the quarter was $374 million, an increase of 16% in U.S. dollars from the year ago quarter, or 17% measured in constant currency.  Constant currency references in this release are as detailed in the tables below.  Subscription revenue for the quarter was $327 million, up 17% in U.S. dollars year-over-year, or 18% measured in constant currency.   

“We are a market leader for new innovations based on open source technologies that are driving the transformation of the data center toward an open, hybrid cloud infrastructure. ” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat.  “We recently added infrastructure-as-a-service, Red Hat Enterprise Linux OpenStack Platform, to our portfolio of cloud offerings.  The combination of this powerful technology with our platform-as-a-service, open software-defined storage and cloud management solutions create a compelling road map for our customers in the move to cloud computing.”  

GAAP operating income for the second quarter was $56 million, up 11% year-over-year.  After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, as detailed in the tables below, non-GAAP operating income for the second quarter was $94 million, up 19% year-over-year.  For the second quarter, GAAP operating margin was 14.8% and non-GAAP operating margin was 25.2%.

Net income for the quarter was $41 million, or $0.21 per diluted share, compared with $35 million, or $0.18 per diluted share, in the year ago quarter.  After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, as detailed in the tables below, non-GAAP net income for the quarter was $68 million, or $0.35 per diluted share, as compared to $55 million, or $0.28 per diluted share, in the year ago quarter.   

Operating cash flow was $119 million for the second quarter, as compared to $104 million in the year ago quarter.  At quarter end, the company’s total deferred revenue balance was $1.06 billion, an increase of 12% on a year-over-year basis.  Total cash, cash equivalents and investments as of August 31, 2013 was $1.29 billion after repurchasing approximately $20 million of common stock, or approximately 438 thousand shares, in the second quarter.  Red Hat has repurchased approximately $199 million of common stock, or approximately 4.1 million shares, during the first six months of fiscal 2014.

“We delivered mid-to-high teens growth across several financial metrics including revenue, non-GAAP operating income and operating cash flow,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.  “These results were driven in particular by strong subscription revenue growth, up 17% in U.S. dollars and 18% in constant currency.  The billing proxy, which we define as total revenue plus the change in deferred revenue found on the Statement of Cash Flows, was $376 million, up 8% in U.S. dollars and 9% in constant currency.  This billings growth reflects modest IT spending in Europe and the impact of large deal arrangements.”

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 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 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.


###

Red Hat, the Shadowman logo, JBoss and OpenShift are registered trademarks of Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark of Linus Torvald and OpenStack is a registered trademark of OpenStack, LLC.

 

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,
       2013  2012  2013 2012
Revenue:              
                
Subscriptions    $326,692  $278,800  $642,509 $551,371
Training and services    47,731  43,795  95,173 85,956
                
Total subscription, training and services revenue    374,423  322,595  737,682 637,327
                
Cost of revenue:             
                
Subscriptions    23,518  18,846  46,893 36,786
Training and services    32,062  29,012  64,744 57,092
                
Total cost of subscription, training and services revenue    55,580  47,858  111,637 93,878
                
                
Total gross profit    318,843  274,737  626,045 543,449
                
Operating expense:             
Sales and marketing    144,596  123,578  287,040 244,449
Research and development    78,299  63,366  152,100 123,246
General and administrative    38,203  37,813  72,537 71,724
Facility exit costs    2,171  -  2,171 3,142
                
Total operating expense    263,269  224,757  513,848 442,561
                
Income from operations    55,574  49,980  112,197 100,888
Interest income    1,527  2,154  3,029 4,448
Other income (expense), net    1,196  (656)  772 1,232
                
                
Income before provision for income taxes    58,297  51,478  115,998 106,568
Provision for income taxes    17,489  16,473  34,799 34,102
                
Net income    $40,808  $35,005  $81,199 $72,466
                
Net income per share:             
Basic      $0.22  $0.18  $0.43 $0.38
Diluted      $0.21  $0.18  $0.42 $0.37
                
Weighted average shares outstanding:             
Basic      189,437  193,064  190,276 193,005
Diluted      191,432  195,795  192,230 195,929
                

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
       
ASSETS
 
   August 31,  February 28,
   2013  2013 (1)
   (Unaudited)   
Current assets:    
Cash and cash equivalents$596,794  $487,084
Investments in debt and equity securities266,841  392,381
Accounts receivable, net232,884  302,942
Deferred tax assets, net88,325  88,765
Prepaid expenses93,987  94,421
Other current assets2,829  3,156
       
Total current assets1,281,660  1,368,749
       
Property and equipment, net167,343  141,586
Goodwill 690,342  690,911
Identifiable intangibles, net142,247  142,243
Investments in debt securities427,036  438,908
Other assets, net30,953  31,263
       
Total assets$2,739,581  $2,813,660
       
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:    
Accounts payable and accrued expenses$178,904  $154,202
Deferred revenue796,044  830,486
Other current obligations993  1,024
       
Total current liabilities975,941  985,712
       
Long term deferred revenue263,553  259,466
Other long term obligations58,483  48,321
Stockholders' equity:    
Common stock23  23
Additional paid-in capital1,846,825  1,802,899
Retained earnings623,079  541,880
Treasury stock, at cost(1,016,401)  (816,674)
Accumulated other comprehensive loss(11,922)  (7,967)
       
Total stockholders' equity1,441,604  1,520,161
       
Total liabilities and stockholders' equity$2,739,581  $2,813,660
       
       
(1) Derived from audited financial statements    
     

 

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,
      2013  2012  2013 2012
               
Cash flows from operating activities:             
Net income    $40,808  $35,005  $81,199 $72,466
Adjustments to reconcile net income to net cash provided by             
operating activities:             
Depreciation and amortization    18,439  14,568  36,371 28,647
Share-based compensation expense    29,874  23,859  53,006 46,065
Deferred income taxes    3,818  13,036  16,663 23,063
Excess tax benefits from share-based payment arrangements    (2,610)  (9,600)  (5,643) (19,800)
Net amortization of bond premium on available-for-sale debt securities    2,285  1,748  4,336 3,420
Other     (96)  529  47 (1,840)
Changes in operating assets and liabilities net of effects of acquisitions:             
Accounts receivable    (6,341)  (18,735)  66,081 35,825
Prepaid expenses    (5,645)  833  (2,394) (6,966)
Accounts payable and accrued expenses    38,902  13,502  26,293 22,928
Deferred revenue    1,880  26,430  (15,020) 21,308
Other     (2,385)  2,678  (195) 3,141
               
Net cash provided by operating activities    118,929  103,853  260,744 228,257
               
Cash flows from investing activities:             
Purchase of available-for-sale debt securities    (217,433)  (185,028)  (347,076) (507,769)
Proceeds from sales and maturities of available-for-sale debt securities    153,917  190,094  479,767 417,779
Acquisition of business, net of cash acquired    -  (10,051)  - (10,051)
Purchase of other intangible assets    (10,177)  (24,341)  (12,521) (26,863)
Purchase of property and equipment    (21,829)  (20,344)  (48,506) (36,243)
Other     (2,126)  -  (1,934) 330
               
Net cash provided by (used in) investing activities    (97,648)  (49,670)  69,730 (162,817)
               
Cash flows from financing activities:             
Excess tax benefits from share-based payment arrangements    2,610  9,600  5,643 19,800
Proceeds from exercise of common stock options    635  2,626  1,088 6,516
Purchase of treasury stock    (20,009)  (2,871)  (199,345) (32,882)
Payments related to net settlement of employee share-based compensation awards    (3,833)  (3,856)  (14,815) (22,688)
Payments on other borrowings    (312)  (213)  (617) (477)
               
Net cash provided by (used in) financing activities    (20,909)  5,286  (208,046) (29,731)
               
Effect of foreign currency exchange rates on cash and cash equivalents    (1,576)  3,491  (12,718) (13,350)
Net increase (decrease) in cash and cash equivalents    (1,204)  62,960  109,710 22,359
Cash and cash equivalents at beginning of the period    597,998  508,616  487,084 549,217
               
Cash and cash equivalents at end of period    $596,794  $571,576  $596,794 $571,576
              

 

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  Six Months Ended
 August 31,  August 31,  August 31, August 31,
 2013  2012  2013 2012
          
Cost of revenue$3,100  $2,167  $5,939 $4,333
Sales and marketing10,365  7,726  19,741 15,087
Research and development9,058  7,294  15,939 14,106
General and administration7,351  6,672  11,387 12,539
Total share-based compensation expense$29,874  $23,859  $53,006 $46,065
          
          
Amortization of intangible assets expense included in Consolidated Statements of Operations:     
          
 Three Months Ended  Six Months Ended
 August 31,  August 31,  August 31, August 31,
 2013  2012  2013 2012
          
Cost of revenue$2,496  $1,149  $5,169 $1,819
Sales and marketing1,958  2,120  3,916 4,196
Research and development959  959  1,918 1,918
General and administration1,203  1,181  2,740 2,324
Total amortization of intangible assets expense$6,616  $5,409  $13,743 $10,257
          
          
Facility exit costs included in Consolidated Statements of Operations:        
          
 Three Months Ended  Six Months Ended
 August 31,  August 31,  August 31, August 31,
 2013  2012  2013 2012
          
Facility exit costs$2,171  -  $2,171 $3,142
          
          
          
 Three Months Ended  Six Months Ended
 August 31,  August 31,  August 31, August 31,
 2013  2012  2013 2012
          
GAAP net income$40,808  $35,005  $81,199 $72,466
          
Provision for income taxes17,489  16,473  34,799 34,102
          
GAAP income before provision for income taxes$58,297  $51,478  $115,998 $106,568
          
Add: Non-cash share-based compensation expense29,874  23,859  53,006 46,065
Add: Amortization of intangible assets6,616  5,409  13,743 10,257
Add: Facility exit costs2,171  -  2,171 3,142
          
Non-GAAP adjusted income before provision for income taxes$96,958  $80,746  $184,918 $166,032
          
Provision for income taxes29,088  25,839  55,475 53,130
          
Non-GAAP adjusted net income (basic and diluted)$67,870  $54,907  $129,443 $112,902
          
Non-GAAP adjusted net income per share:         
Basic$0.36  $0.28  $0.68 $0.58
Diluted$0.35  $0.28  $0.67 $0.58
          

 

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  Six Months Ended
     August 31,   August 31,  August 31,   August 31,
     2013   2012  2013   2012
                 
GAAP gross profit    $318,843   $274,737  $626,045   $543,449
                 
Add: Non-cash share-based compensation expense    3,100   2,167  5,939   4,333
Add: Amortization of intangible assets    2,496   1,149  5,169   1,819
                 
Non-GAAP gross profit    $324,439   $278,053  $637,153   $549,601
                 
Non-GAAP gross margin    87%   86%  86%   86%
                 
                 
     Three Months Ended  Six Months Ended
     August 31,   August 31,  August 31,   August 31,
     2013   2012  2013   2012
                 
GAAP operating expenses    $263,269   $224,757  $513,848   $442,561
                 
Deduct: Non-cash share-based compensation expense    (26,774)   (21,692)  (47,067)   (41,732)
Deduct: Amortization of intangible assets    (4,120)   (4,260)  (8,574)   (8,438)
Deduct: Facility exit costs    (2,171)   -  (2,171)   (3,142)
                 
Non-GAAP adjusted operating expenses    $230,204   $198,805  $456,036   $389,249
                 
                 
     Three Months Ended  Six Months Ended
     August 31,   August 31,  August 31,   August 31,
     2013   2012  2013   2012
                 
GAAP operating income    $55,574   $49,980  $112,197   $100,888
                 
Add: Non-cash share-based compensation expense    29,874   23,859  53,006   46,065
Add: Amortization of intangible assets    6,616   5,409  13,743   10,257
Add: Facility exit costs    2,171   -  2,171   3,142
                 
Non-GAAP adjusted operating income    $94,235   $79,248  $181,117   $160,352
                 
Non-GAAP adjusted operating margin    25.2%   24.6%  24.6%   25.2%
                 
                 
                 
                 
     Three Months Ended       
     August 31,   August 31,  Year-Over-Year    
     2013   2012  Growth Rate    
                 
GAAP subscription revenue    $326,692   $278,800  17.2%    
Adjustment for currency impact    2,880   -       
Non-GAAP subscription revenue on a constant currency basis    $329,572   $278,800  18.2%    
                 
GAAP training and services revenue    $47,731   $43,795  9.0%    
Adjustment for currency impact    427   -       
Non-GAAP training and services revenue on a constant currency basis    $48,158   $43,795  10.0%    
                 
GAAP total subscription, training and services revenue    $374,423   $322,595  16.1%    
Adjustment for currency impact    3,307   -       
Non-GAAP total subscription, training and services revenue on a constant currency basis    $377,730   $322,595  17.1%    
                 
                 
     Six Months Ended       
     August 31,   August 31,  Year-Over-Year    
     2013   2012  Growth Rate    
                 
GAAP subscription revenue    $642,509   $551,371  16.5%    
Adjustment for currency impact    8,600   -       
Non-GAAP subscription revenue on a constant currency basis    $651,109   $551,371  18.1%    
                 
GAAP training and services revenue    $95,173   $85,956  10.7%    
Adjustment for currency impact    981   -       
Non-GAAP training and services revenue on a constant currency basis    $96,154   $85,956  11.9%    
                 
GAAP total subscription, training and services revenue    $737,682   $637,327  15.7%    
Adjustment for currency impact    9,581   -       
Non-GAAP total subscription, training and services revenue on a constant currency basis    $747,263   $637,327  17.2%    
  • 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.