Red Hat Reports Fiscal Fourth Quarter and Year End Results

Red Hat, Inc. (NASDAQ: RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for the fourth quarter and fiscal year ended February 28, 2005.
 

• Continued strong demand in Linux market spurs record revenue
• Fourth quarter revenue exceeds guidance; EPS in-line with expectations
• Enterprise subscription revenue and deferred revenue grow 92% and 86% on a year-over-year basis, respectively
• Expanded stock repurchase program more than doubles the size of the prior program

Total revenue for the fourth quarter of fiscal 2005 was $57.5 million, a year-over-year increase of 56% and a sequential increase of 13%. For the full fiscal year 2005, total revenue was $196.5 million, an increase of 58% compared to fiscal year 2004.

Enterprise subscription revenue was $45.4 million in the fourth quarter of fiscal 2005, an increase of 92% on a year-over-year basis and 19% on a sequential basis. For the full fiscal year 2005, enterprise subscription revenue was $147.4 million, or a 120% year-over-year increase.

For the fourth quarter of fiscal 2005, the company reported net income of $11.8 million, or $0.06 per diluted share. Earnings per share for the fourth quarter of fiscal 2005 grew 200% on a year-over-year basis and were in-line with the prior quarter. For the full fiscal year, the company reported net income of $45.4 million, or $0.24 per diluted share, up from $0.07 per diluted share a year ago.

The company generated $30.6 million in cash flow from operations during the fourth quarter of fiscal 2005. This led to full fiscal year 2005 cash flow from operations of $122.2 million, representing an increase of 100% compared to fiscal year 2004.

After investing $54.8 million to repurchase stock during the quarter, cash and investments totaled $929 million as of February 28, 2005. [By separate press release, the company also announced today the expansion of its share repurchase program, which more than doubled the authorization of the prior share repurchase program.]

At the end of fiscal 2005, the company's total deferred revenue balance was $137.3 million, an increase of 86% on a year-over-year basis

"We are very pleased with the strong momentum of the Linux market place, and our business in particular," commented Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Based on publicly available information, we believe our enterprise subscription revenue run rate is more than six times that of the number two Linux provider, and over the past year we have expanded our market leadership position across the globe. A number of leading industry analysts believe that Linux will continue to be the fastest growing operating system over the next 3-5 years and we remain confident in our ability to compete."

Charlie Peters also stated, "We were very pleased with the company's revenue and bookings performance during the quarter. Heading into fiscal 2006, we feel optimistic about our business opportunity based on the strength of the market and our competitive position, and the growing visibility of our recurring revenue model. Finally, our confidence in the future cash flow capabilities of the company is evidenced by the expansion of our share repurchase program, which was separately announced today."

Other highlights from the fourth quarter include:

• For the first time in its history, Red Hat sold to over 10,000 customers in a single quarter, and sold a record 175,000 new and renewed subscriptions.
• During the quarter, Red Hat was rated the number one value and reliability provider of all technology vendors in a survey of over 1,000 CIOs and IT executives conducted by Ziff Davis.
• Channel partner contribution continued to increase, with the percentage of business coming from the indirect channel growing to 56% of orders in the fourth quarter of fiscal 2005, up from 51% in the prior quarter and 43% in the first quarter of the fiscal year.
• Significant investments in international operations culiminated in bookings from international operations growing more than 60% year-over-year.
• The number of software and hardware applications and platforms supporting Red Hat Enterprise Linux exceeded 1,800 at the end of fiscal 2005, an increase of over 80% compared to the end of the prior fiscal year.
• The company shipped Red Hat Enterprise Linux 4 during the quarter, representing a major upgrade to the company's flagship offering and setting the standard for enterprise ready Linux platforms.

See the earnings tables.

About Red Hat, Inc.

Red Hat, the world's leading open source and Linux provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com

Forward-Looking Statements

Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov.

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