Red Hat Reports Fiscal Fourth Quarter and Fiscal Year 2008 Results

Annual Revenue up 31% from Prior Year Deferred Revenue up 40% from Prior Year Repurchased $66 Million of its Common Stock

RALEIGH, N.C. -

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 29, 2008.

"During the fourth quarter, I spent a significant amount of time meeting with customers, partners, employees and thought leaders from the open source community. The momentum of open source solutions is strong and growing, and we believe there is a significant opportunity to expand our presence with existing customers and the many companies and industries that have only just begun to adopt open source solutions in a meaningful way," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "In addition, feedback I received supports why Red Hat has been rated the number one enterprise software vendor for value by CIO Insight Magazine for four consecutive years. As a result of these factors, we are optimistic about the growth outlook for the Linux market and Red Hat as we begin fiscal 2009."

Total revenue for the quarter was $141.5 million, an increase of 27% from the year ago quarter and 5% from the prior quarter. Subscription revenue for the quarter was $121.9 million, up 27% year-over-year and 5% sequentially. For the full year, total revenue was $523.0 million, an increase of 31% over fiscal 2007 revenue, and subscription revenue was $449.8 million, up 32% from the prior year.

Net income for the quarter was $22.0 million, or $0.10 per diluted share, compared with $20.3 million, or $0.10 per diluted share, for the prior quarter and $20.5 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $42.7 million, or $0.20 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 $39.7 million, or $0.19 per diluted share in the prior quarter.

For the full year, net income was $76.7 million or $0.36 per diluted share, compared with $59.9 million or $.29 per diluted share in the prior year. Non-GAAP adjusted net income for the year was $152.9 million or $0.72 per diluted share, compared to $115.9 million and $0.56 per diluted share the year before.

Non-GAAP operating cash flow, as detailed in the tables below, totaled $71.6 million or approximately 50% of revenue for the quarter and $264.3 million for the full year. At year end, the company's total deferred revenue balance was $472.9 million, an increase of 40% on a year-over-year basis and 12% sequentially. Total cash, cash equivalents and investments as of February 29, 2008 were $1.3 billion.

Other highlights include the following:

  • During the quarter, Red Hat repurchased approximately 3.7 million shares of its common stock for approximately $66 million.
  • Red Hat Enterprise Linux 5 won SearchEnterpriseLinux.com's 'Product of the Year' Gold for leadership in virtualization.
  • Strong JBoss business growth and a record number of attendees and IT decision makers at JBoss World in February.
  • Subsequent to the quarter close, Red Hat announced the acquisition of Amentra, a regional provider of systems integration and consulting services around middleware, service-oriented architecture and open source solutions.

"It was an outstanding year. Our annual revenue grew over 30%, our deferred revenue grew 40% and we produced operating cash flow margins of 50%. The company's performance was driven by growing demand for our open source solutions and the convincing value which we are able to demonstrate with our customers. We are also realizing returns on the increased investment which we have made over the past year in engineering, sales and marketing, combined with solid execution by our associates." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.

Red Hat Summit Boston, the fourth annual conference and exhibition, will take place at the Hynes Convention Center in Boston, MA, June 18-20, 2008. Details on this year's Red Hat Summit and registration information can be found at www.redhat.com/summit/2008.

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 four consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat provides high-quality, affordable 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: 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 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.

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        Twelve Months Ended
                   ------------------------  -------------------------
                   February 29, February 28, February 29, February 28,
                       2008         2007         2008          2007
                   ------------ -----------  ------------ ------------
Revenue:

  Subscriptions      $121,862     $ 95,906     $449,811      $341,206
  Training and
   services            19,631       15,215       73,205        59,418
                   -----------  -----------  -----------  ------------


    Total
     subscription,
     training and
     services
     revenue          141,493      111,121      523,016       400,624
                   -----------  -----------  -----------  ------------

Cost of revenue:

  Subscriptions         9,389        7,333       33,581        27,457
  Training and
   services            12,011       10,096       47,072        37,279
                   -----------  -----------  -----------  ------------


    Total cost of
     subscription,
     training and
     services
     revenue           21,400       17,429       80,653        64,736
                   -----------  -----------  -----------  ------------


 Total gross profit   120,093       93,692      442,363       335,888

Operating expense:
 Sales and
  marketing            52,093       39,680      192,049       145,562
 Research and
  development          26,316       19,954       97,417        71,038
 General and
  administrative       23,512       17,420       82,525        66,999
                   -----------  -----------  -----------  ------------

  Total operating
   expense            101,921       77,054      371,991       283,599
                   -----------  -----------  -----------  ------------

Income from
 operations            18,172       16,638       70,372        52,289
Other income, net      18,371       11,902       60,420        43,290
Interest expense       (1,611)      (1,549)      (6,252)       (6,016)
                   -----------  -----------  -----------  ------------

Income before
 provision for
 income taxes          34,932       26,991      124,540        89,563
Provision for
 income taxes          12,926        6,504       47,873        29,656
                   -----------  -----------  -----------  ------------

Net income           $ 22,006     $ 20,487     $ 76,667      $ 59,907
                   ===========  ===========  ===========  ============

Net income-diluted   $ 22,929     $ 21,467     $ 80,274      $ 63,826
                   ===========  ===========  ===========  ============

Net income per
 share:
 Basic               $   0.11     $   0.11     $   0.40      $   0.32
 Diluted             $   0.10     $   0.10     $   0.36      $   0.29

Weighted average
 shares
 outstanding:
 Basic                193,189      192,303      193,485       189,347
 Diluted              220,356      220,594      221,313       218,823

Diluted net income
 per share
 computation:
GAAP Net income,
 basic               $ 22,006     $ 20,487     $ 76,667      $ 59,907
Interest expense on
 convertible
 debentures, net of
 related GAAP tax
 effects                  449          477        1,754         1,906
Amortization of
 debt issuance
 costs, net of
 related GAAP tax
 effects                  474          503        1,853         2,013
                   ----------   ----------   ----------   -----------

GAAP Net income,
 diluted             $ 22,929     $ 21,467     $ 80,274      $ 63,826
                   ===========  ===========  ===========  ============
RED HAT, INC.
                     CONSOLIDATED BALANCE SHEETS
                            (In thousands)

                   ASSETS
                                             February 29, February 28,
                                                 2008         2007
                                             ------------ ------------
                                             (Unaudited)
Current assets:
 Cash and cash equivalents                    $  677,720   $  527,239
 Investments in debt securities                  312,442      350,827
 Accounts receivable, net                        127,002       87,973
 Prepaid expenses and other current assets        75,192       41,026
                                             ------------ ------------

   Total current assets                        1,192,356    1,007,065

 Property and equipment, net                      68,557       45,258
 Goodwill                                        340,314      328,837
 Identifiable intangibles, net                    93,823       94,314
 Investments in debt securities                  341,781      278,028
 Other assets, net                                43,151       32,352
                                             ------------ ------------

   Total assets                               $2,079,982   $1,785,854
                                             ============ ============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                             $   17,341   $   12,062
 Accrued expenses                                 43,260       38,472
 Deferred revenue                                339,088      249,615
 Convertible debentures                          570,000            -
 Other current obligations                            59          214
                                             ------------ ------------

  Total current liabilities                      969,748      300,363

 Deferred lease credits                            4,977        5,235
 Long term deferred revenue                      133,805       89,020
 Other long term obligations                      20,261            -
 Convertible debentures                                -      570,000
Stockholders' equity:
 Common stock                                         21           20
 Additional paid-in capital                    1,170,328    1,040,892
 Accumulated deficit                             (28,202)     (92,092)
 Treasury stock, at cost                        (192,946)    (125,789)
 Accumulated other comprehensive loss              1,990       (1,795)
                                             ------------ ------------

   Total stockholders' equity                    951,191      821,236
                                             ------------ ------------

   Total liabilities and stockholders' equity $2,079,982   $1,785,854
                                             ============ ============
RED HAT, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Unaudited)
                            (In thousands)


                     Three Months Ended        Twelve Months Ended
                  ------------------------  --------------------------
                  February 29, February 28, February 29,  February 28,
                      2008         2007         2008           2007

Cash flows from
 operating
 activities:
Net income         $  22,006    $  20,487   $    76,667     $  59,907
Adjustments to
 reconcile net
 income to net
 cash provided by
 operating
 activities:
  Depreciation and
   amortization        9,105        6,161        33,002        23,853
  Deferred income
   taxes              12,654         (771)       41,211        12,232
  Share-based
   compensation
   expense            10,035        8,014        36,457        32,434
  Excess tax
   benefits from
   share-based
   payment
   arrangements      (17,041)     (10,745)      (61,247)      (15,988)
  Provision for
   doubtful
   accounts              (31)          83           825         1,066
  Amortization of
   debt issuance
   costs                 752          752         3,010         3,008
  Net gain on sale
   of strategic
   equity
   investments        (4,799)                    (4,799)
  Other                  103            -           267          (305)
Changes in operating assets
 and liabilities net of
 effects of acquisitions:
  Accounts
   receivable and
   earnings in
   excess of
   billings          (16,999)      (6,674)      (33,741)      (17,301)
  Prepaid expenses
   and other
   current assets     (6,088)      (6,143)       (7,761)       (8,145)
  Accounts payable     6,671        1,306         4,713         4,844
  Accrued expenses    (5,678)       6,409         1,600        15,846
  Deferred revenue    43,957       26,838       113,138        90,403
  Other assets          (134)         (94)         (266)         (298)
                  -----------  -----------   -----------     ---------

  Net cash
   provided by
   operating
   activities         54,513       45,623       203,076       201,556
                  -----------  -----------  ------------  ------------

Cash flows from
 investing
 activities:
 Purchase of
  investment
  securities        (309,853)    (585,229)   (1,173,012)     (592,673)
 Proceeds from
  sales and
  maturities of
  investment
  securities         402,551      258,677     1,155,854       781,539
 Acquisitions of
  businesses, net
  of cash acquired         -            -       (11,784)     (149,864)
 Purchase of
  property and
  equipment          (16,045)      (7,885)      (41,797)      (22,635)
 Proceeds from
  sale of
  strategic equity
  investments          6,199            -         6,199             -
 Purchase of
  developed
  software and
  other intangible
  assets                (840)         319        (5,616)          319
                  -----------  -----------  ------------  ------------

  Net cash
   provided by
   (used in)
   investing
   activities         82,012     (334,118)      (70,156)       16,686
                  -----------  -----------  ------------  ------------

Cash flows from
 financing
 activities:
 Excess tax
  benefits from
  share-based
  payment
  arrangements        17,041       10,745        61,247        15,988
 Net proceeds from
  issuance of
  common stock
  under Employee
  Stock Purchase
  Plan                     -            -             -           306
 Proceeds from
  exercise of
  common stock
  options              1,592        9,678        15,512        24,328
 Purchase of
  treasury stock     (66,539)         (66)      (67,157)       (1,664)
 Structured stock
  repurchase               -            -             -         1,514
 Proceeds from
  other borrowings         -            -         2,898             -
 Payments on other
  borrowings               -         (144)         (756)         (400)
                  -----------  -----------  ------------  ------------

  Net cash
   provided by
   (used in)
   financing
   activities        (47,906)      20,213        11,744        40,072
                  -----------  -----------  ------------  ------------

Effect of foreign
 currency exchange
 rates on cash and
 cash equivalents      2,142         (471)        5,817         1,378
Net increase in
 cash and cash
 equivalents          90,761     (268,753)      150,481       259,692
Cash and cash
 equivalents at
 beginning of the
 period              586,959      795,992       527,239       267,547
                  -----------  -----------  ------------  ------------

Cash and cash
 equivalents at
 end of period     $ 677,720    $ 527,239   $   677,720     $ 527,239
                  ===========  ===========  ============  ============

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        Twelve Months Ended
                   ------------------------  -------------------------
                   February 29, February 28, February 29, February 28,
                         2008         2007        2008          2007
                   ------------ -----------  ------------ ------------

 Cost of revenue       $   657      $   610     $  2,393      $  2,216
 Sales and
  marketing              2,606        2,280       10,193         9,033
 Research and
  development            2,265        2,056        8,717         7,206
 General and
  administration         4,507        3,068       15,154        13,979
                   -----------  -----------  -----------  ------------
 Total stock based
  compensation
  expense              $10,035      $ 8,014     $ 36,457      $ 32,434
                   ===========  ===========  ===========  ============




Reconciliation of GAAP results to non-GAAP adjusted results

                      Three Months Ended        Twelve Months Ended
                   ------------------------  -------------------------
                   February 29, February 28, February 29, February 28,
                         2008         2007        2008          2007
                   ------------ -----------  ------------ ------------

GAAP net income        $22,006      $20,487     $ 76,667      $ 59,907

GAAP provision for
 income taxes           12,926        6,504       47,873        29,656
                   -----------  -----------  -----------  ------------

GAAP income before
 provision for
 income taxes          $34,932      $26,991     $124,540      $ 89,563

Add: Non-cash
 share-based
 compensation
 expense per FAS
 123R                   10,035        8,014       36,457        32,434
                   -----------  -----------  -----------  ------------

Non-GAAP adjusted
 income before
 provision for
 income taxes          $44,967      $35,005     $160,997      $121,997

Non-GAAP cash
 provision for
 income taxes          $ 2,248      $ 1,750     $  8,050      $  6,100
                   -----------  -----------  -----------  ------------

Non-GAAP adjusted
 net income            $42,719      $33,255     $152,947      $115,897
                   ===========  ===========  ===========  ============

Non-GAAP adjusted
 net income-diluted    $44,111      $34,647     $158,514      $121,464
                   ===========  ===========  ===========  ============

Non-GAAP adjusted
 net income per
 share:
 Basic                 $  0.22      $  0.17     $   0.79      $   0.61
 Diluted               $  0.20      $  0.16     $   0.72      $   0.56


Non-GAAP diluted
 net income per
 share computation:
Non-GAAP adjusted
 net income            $42,719      $33,255     $152,947      $115,897
Interest expense on
 convertible
 debentures, net of
 related 5% cash
 tax effects               677          677        2,708         2,708
Amortization of
 debt issuance
 costs, net of
 related 5% cash
 tax effects               715          715        2,859         2,859
                   -----------  -----------  -----------  ------------

Non-GAAP adjusted
 net income-diluted    $44,111      $34,647     $158,514      $121,464
                   ===========  ===========  ===========  ============


Reconciliation of GAAP cash flows from operating activities to non-
 GAAP adjusted cash flows from operating activities

                      Three Months Ended        Twelve Months Ended
                   ------------------------  -------------------------
                   February 29, February 28, February 29, February 28,
                         2008         2007        2008          2007
                   ------------ -----------  ------------ ------------

GAAP net cash
 provided by
 operating
 activities            $54,513      $45,623     $203,076      $201,556

Add: Excess tax
 benefits from
 share-based
 payment
 arrangements           17,041       10,745       61,247        15,988
                   -----------  -----------  -----------  ------------

Non-GAAP net cash
 provided by
 operating
 activities            $71,554      $56,368     $264,323      $217,544
                   ===========  ===========  ===========  ============
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       Twelve Months Ended
                    ------------------------ -------------------------
                    February 29, February 28,February 29, February 28,
                          2008         2007        2008          2007
                    ------------ ----------- ------------ ------------

GAAP Gross profit     $120,093      $93,692    $442,363      $335,888

Add: Non-cash share-
 based compensation
 expense per FAS
 123R                      657          610       2,393         2,216
                    ----------   ----------  ----------   -----------

Non-GAAP gross
 profit               $120,750      $94,302    $444,756      $338,104
                    ----------   ----------  ----------   -----------

Non-GAAP gross
 margin                     85%          85%         85%           84%


                       Three Months Ended       Twelve Months Ended
                    ------------------------ -------------------------
                    February 29, February 28,February 29, February 28,
                          2008         2007        2008          2007
                    ------------ ----------- ------------ ------------

GAAP operating
 expenses             $101,921      $77,054    $371,991      $283,599

Deduct: Non-cash
 share-based
 compensation
 expense per FAS
 123R                   (9,378)      (7,404)    (34,064)      (30,218)
                    -----------  ----------- -----------  ------------

Non-GAAP adjusted
 operating expenses   $ 92,543      $69,650    $337,927      $253,381
                    -----------  ----------- -----------  ------------


                       Three Months Ended       Twelve Months Ended
                    ------------------------ -------------------------
                    February 29, February 28,February 29, February 28,
                          2008         2007        2008          2007
                    ------------ ----------- ------------ ------------

GAAP operating
 income               $ 18,172      $16,638    $ 70,372      $ 52,289

Add: Non-cash share-
 based compensation
 expense per FAS
 123R                   10,035        8,014      36,457        32,434
                    -----------  ----------- -----------  ------------

Non-GAAP adjusted
 operating income     $ 28,207      $24,652    $106,829      $ 84,723
                    -----------  ----------- -----------  ------------

Non-GAAP adjusted
 operating margin         19.9%        22.2%       20.4%         21.1%
  • 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.