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Red Hat Reports Fourth Quarter and Fiscal Year 2015 Results

RALEIGH, N.C. -
  • Fourth quarter revenue of $464 million, up 16% year-over-year; full fiscal year revenue of $1.79 billion, up 17% year-over-year
  • Fourth quarter subscription revenue of $405 million, up 15% year-over-year; full fiscal year subscription revenue of $1.56 billion, up 17% year-over-year
  • Fourth quarter operating cash flow of $217 million, up 18% year-over-year; full fiscal year operating cash flow of $623 million, up 15% year-over-year
  • Year-end deferred revenue balance of $1.48 billion, up 15% year-over-year

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 28, 2015.

Total revenue for the quarter was $464 million, an increase of 16% in U.S. dollars from the year ago quarter, or 22% measured in constant currency.  Constant currency references in this release are as detailed in the tables below.  Subscription revenue for the quarter was $405 million, up 15% in U.S. dollars year-over-year, or 21% measured in constant currency. For the full fiscal year, total revenue was $1.79 billion, up 17% in U.S. dollars year-over-year, or 19% measured in constant currency, and subscription revenue was $1.56 billion, up 17% in U.S. dollars year-over-year, or 19% measured in constant currency.

"Red Hat delivered strong fourth quarter results that were highlighted by subscription revenue and total revenue that both grew over 20% year-over-year on a constant currency basis.  We continued to experience strong demand for our open, hybrid cloud technologies, as evidenced by increased cross-selling in our top 30 deals which were all over $2 million for the first time,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Customers value the consistency and flexibility as they run their applications using Red Hat solutions across a variety of deployment models, including public and private clouds, to modernize and transform their IT infrastructure.  We believe that our strategic position as a trusted provider of infrastructure and our execution this past year have positioned us for strong constant currency revenue growth in the next fiscal year.”

GAAP operating income for the fourth quarter and the full fiscal year was $68 million and $250 million, respectively.  GAAP operating margin was 14.6% in the fourth quarter and 14.0% for the full year.  After adjusting for stock compensation, amortization expenses, certain facility exit costs, transaction costs related to business combinations, and non-cash interest expense related to convertible debt as detailed in the tables below, non-GAAP operating income for the quarter was $111 million, or a 23.8% operating margin.  Full year non-GAAP operating income was $416 million and full year non-GAAP operating margin was 23.3%.

GAAP net income for the fourth quarter was $48 million, or $0.26 per diluted share, compared with $48 million, or $0.26 per diluted share, for the prior quarter and $45 million, or $0.24 per diluted share, in the year ago quarter.  Non-GAAP adjusted net income for the fourth quarter was $81 million, or $0.43 per diluted share, 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.  This compares to non-GAAP adjusted net income of $79 million, or $0.42 per diluted share in the prior quarter, and $75 million, or $0.39 per diluted share in the year ago quarter.      

For the full year, GAAP net income was $180 million or $0.95 per diluted share, compared with $178 million or $0.93 per diluted share in the prior year.  After adjusting for stock compensation, amortization expenses, certain facility exit costs, transaction costs related to business combinations, and non-cash interest expense related to convertible debt as detailed in the tables below, non-GAAP adjusted net income for the year was $303 million or $1.60 per diluted share, compared to $285 million or $1.49 per diluted share for the previous fiscal year.  For fiscal year 2015, Red Hat fully diluted shares outstanding were approximately 189.2 million for the full fiscal year, lower by 2.8 million shares due in part to the repurchase of approximately 8.4 million shares, or approximately $535 million of common stock during the year.

Operating cash flow totaled $217 million for the fourth quarter and $623 million for the full year.  Cash and investments at February 28, 2015 totaled $1.81 billion.    

“Our strong fourth quarter marked the 52nd consecutive quarter of revenue growth and we exited the fiscal year with a record total backlog over $1.86 billion, up 19% year-over-year,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.  “We are pleased to have delivered mid-teens growth across revenue, non-GAAP operating income and cash flow despite significant foreign exchange volatility during fiscal 2015.  By focusing on the needs of our customers, our team of global associates achieved remarkable success across the company for the quarter and the year.”

Total backlog for fiscal year 2015 was in excess of $1.86 billion, up 19% year-over-year.  We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements.  At the end of the fiscal year, the company’s total deferred revenue balance was $1.48 billion, an increase of 15% on a year-over-year basis and 14% sequentially.  The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $380 million as of February 28, 2015, compared with the ending balance in excess of $270 million reported for fiscal year 2014.  The portion of the total backlog to be billed in the next twelve months not reflected in our financial statements was in excess of $230 million as of February 28, 2015, compared with in excess of $190 million for the fiscal year ending February 28, 2014.

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $2.07 billion for fiscal year 2015 compared with $1.74 billion for the prior fiscal year, an increase of 19%.  For the four-fiscal-quarter period ended February 28, 2015, our rolling average quarterly billings proxy increased $83 million, or 19%, to $518 million from $435 million for the four-fiscal-quarter period ended February 28, 2014.

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.

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014 (1)
Revenue:             
              
 Subscriptions     $405,073 $351,492 $1,561,234 $1,336,771
 Training and services     58,869 48,905 228,255 197,844
              
              
  Total subscription, training and services revenue    463,942 400,397 1,789,489 1,534,615
              
Cost of revenue:             
              
 Subscriptions     28,731 25,663 112,856 97,100
 Training and services     41,487 34,873 160,343 135,500
              
              
  Total cost of subscription, training and services revenue    70,218 60,536 273,199 232,600
              
              
 Total gross profit     393,724 339,861 1,516,290 1,302,015
              
Operating expense:             
 Sales and marketing     189,811 157,317 728,387 597,885
 Research and development     92,038 82,644 367,856 317,263
 General and administrative     44,267 40,600 170,053 152,407
 Facility exit costs     - - - 2,171
              
              
  Total operating expense    326,116 280,561 1,266,296 1,069,726
              
Income from operations      67,608 59,300 249,994 232,289
 Interest income     2,288 2,037 8,336 6,645
 Interest expense     5,803 45 9,394 160
 Other income (expense), net     4,784 328 6,562 774
              
              
Income before provision for income taxes      68,877 61,620 255,498 239,548
Provision for income taxes      21,177 16,551 75,297 61,256
              
Net income      $47,700 $45,069 $180,201 $178,292
              
Net income per share:             
 Basic     $0.26 $0.24 $0.97 $0.94
 Diluted     $0.26 $0.24 $0.95 $0.93
              
Weighted average shares outstanding:             
 Basic     183,459 189,604 186,529 189,920
 Diluted     186,307 191,712 189,246 192,036
              
              
   (1) Derived from audited financial statements          

 

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
           
ASSETS
        February 28, February 28,
        2015 2014 (1)
        (Unaudited)  
Current assets:          
 Cash and cash equivalents      $1,047,473 $646,742
 Investments in debt and equity securities      215,254 335,387
 Accounts receivable, net      468,021 360,594
 Deferred tax assets, net      86,796 108,264
 Prepaid expenses      150,715 118,387
 Other current assets      1,980 1,808
           
   Total current assets    1,970,239 1,571,182
           
 Property and equipment, net      172,151 173,917
 Goodwill      927,060 687,430
 Identifiable intangibles, net      134,276 133,399
 Investments in debt securities      546,016 505,300
 Other assets, net      53,243 35,391
           
   Total assets    $3,802,985 $3,106,619
           
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:          
 Accounts payable and accrued expenses      $237,733 $179,468
 Deferred revenue      1,095,115 966,832
 Other current obligations      1,844 1,786
           
   Total current liabilities    1,334,692 1,148,086
           
 Convertible notes      715,402 -
 Long term deferred revenue      387,213 322,365
 Other long term obligations      77,340 85,003
Stockholders' equity:          
 Common stock      23 23
 Additional paid-in capital      1,963,851 1,891,848
 Retained earnings      900,373 720,172
 Treasury stock, at cost      (1,515,288) (1,056,419)
 Accumulated other comprehensive loss      (60,621) (4,459)
           
   Total stockholders' equity    1,288,338 1,551,165
           
   Total liabilities and stockholders' equity    $3,802,985 $3,106,619
           
           
   (1) Derived from audited financial statements       

 

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014 (1)
              
Cash flows from operating activities:             
Net income      $47,700  $45,069  $180,201  $178,292
Adjustments to reconcile net income to net cash provided by             
operating activities:             
 Depreciation and amortization     19,149 19,079 76,263 74,405
 Share-based compensation expense     36,290 30,578 135,232 113,774
 Deferred income taxes     20,392 4,168 23,517 13,776
 Net amortization of bond premium on available-for-sale debt securities     2,349 2,060 9,314 8,697
 Accretion of debt discount and amortization of debt issuance costs     5,142 - 8,227 -
 Other     (2,947) 926 (3,474) 1,411
Changes in operating assets and liabilities net of effects of acquisitions:             
 Accounts receivable     (123,850) (52,536) (121,536) (61,785)
 Prepaid expenses     (27,239) (21,619) (40,741) (25,122)
 Accounts payable and accrued expenses     14,865 (10,129) 71,040 28,436
 Deferred revenue     224,738 164,358 282,693 205,357
 Other     795 2,728 2,059 3,339
              
  Net cash provided by operating activities    217,384 184,682 622,795 540,580
              
Cash flows from investing activities:             
 Purchase of available-for-sale debt securities     (107,482) (324,029) (568,551) (772,741)
 Proceeds from sales and maturities of available-for-sale debt securities     77,048 166,271 580,158 764,122
 Acquisitions of businesses, net of cash acquired     - - (296,121) -
 Purchase of other intangible assets     (2,212) (4,769) (6,123) (17,972)
 Purchase of property and equipment     (10,563) (17,754) (45,648) (79,587)
 Other     8,365 - 11,282 (2,084)
              
  Net cash used in investing activities    (34,844) (180,281) (325,003) (108,262)
              
Cash flows from financing activities:             
 Excess tax benefits from share-based payment arrangements     710 3,766 5,607 12,837
 Proceeds from exercise of common stock options     1,280 811 2,434 2,122
 Purchase of treasury stock     - - (535,062) (239,363)
 Payments related to net settlement of employee share-based compensation awards     (4,148) (4,280) (43,462) (37,402)
 Proceeds from issuance of convertible notes, net of issuance costs     (625) - 789,769 -
 Purchase of convertible note hedges     - - (148,040) -
 Proceeds from issuance of warrants     - - 79,776 -
 Payments on other borrowings     (390) (325) (2,782) (1,304)
              
  Net cash provided by (used in) financing activities    (3,173) (28) 148,240 (263,110)
              
 Effect of foreign currency exchange rates on cash and cash equivalents     (15,883) 258 (45,301) (9,550)
 Net increase in cash and cash equivalents     163,484 4,631 400,731 159,658
 Cash and cash equivalents at beginning of the period     883,989 642,111 646,742 487,084
              
Cash and cash equivalents at end of period      $1,047,473 $646,742 $1,047,473 $646,742
              
              
   (1) Derived from audited financial statements          

 

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 Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
 Cost of revenue     $3,569 $2,932 $14,027 $11,793
 Sales and marketing     15,408 10,313 55,203 40,322
 Research and development     10,426 9,094 38,517 34,194
 General and administration     6,887 8,239 27,485 27,465
 Total share-based compensation expense     $36,290 $30,578 $135,232 $113,774
              
              
Amortization of intangible assets expense included in Consolidated Statements of Operations:             
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
 Cost of revenue     $2,576 $2,508 $10,672 $10,180
 Sales and marketing     2,305 2,477 7,838 8,872
 Research and development     250 959 2,417 3,836
 General and administration     1,484 1,288 5,958 5,316
 Total amortization of intangible assets expense     $6,615 $7,232 $26,885 $28,204
              
              
Non-cash interest expense from accretion of debt discount included in Consolidated Statements of Operations:             
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
 Total non-cash interest expense from accretion of debt discount     $4,556 - $7,292 -
              
Facility exit costs included in Consolidated Statements of Operations:             
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
 Facility exit costs     - - - $2,171
              
              
Transaction costs related to business combinations included in Consolidated Statements of Operations:             
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
 Transaction costs related to business combinations     - - $4,001 -
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
GAAP net income      $47,700 $45,069 $180,201 $178,292
              
Provision for income taxes      21,177 16,551 75,297 61,256
              
GAAP income before provision for income taxes      $68,877 $61,620 $255,498 $239,548
              
Add: Non-cash share-based compensation expense      36,290 30,578 135,232 113,774
Add: Amortization of intangible assets      6,615 7,232 26,885 28,204
Add: Non-cash interest expense from accretion of debt discount      4,556 - 7,292 -
Add: Facility exit costs      - - - 2,171
Add: Transaction costs related to business combinations      - - 4,001 -
              
Non-GAAP adjusted income before provision for income taxes      $116,338 $99,430 $428,908 $383,697
              
(1)Provision for income taxes      35,754 24,277 126,399 98,226
              
Non-GAAP adjusted net income (basic and diluted)      $80,584 $75,153 $302,509 $285,471
              
Non-GAAP adjusted net income per share:             
 Basic     $0.44 $0.40 $1.62 $1.50
 Diluted     $0.43 $0.39 $1.60 $1.49
              
              
(1) Provision for income taxes:             
Non-GAAP adjusted net income before income tax provision      $116,338 $99,430 $428,908 $383,697
 Estimated annual effective tax rate     30.7% 24.4% 29.5% 26.7%
Non-GAAP provision for income taxes before discrete tax benefit      35,754 24,277 126,399 102,451
 Discrete tax benefit     - - - 4,225
Provision for income taxes on Non-GAAP adjusted net income      $35,754 $24,277 $126,399 $98,226

 

 

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 Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
GAAP gross profit      $393,724 $339,861 $1,516,290 $1,302,015
              
Add: Non-cash share-based compensation expense      3,569 2,932 14,027 11,793
Add: Amortization of intangible assets      2,576 2,508 10,672 10,180
              
Non-GAAP gross profit      $399,869 $345,301 $1,540,989 $1,323,988
              
Non-GAAP gross margin      86.2% 86.2% 86.1% 86.3%
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
GAAP operating expenses      $326,116 $280,561 $1,266,296 $1,069,726
              
Deduct: Non-cash share-based compensation expense      (32,721) (27,646) (121,205) (101,981)
Deduct: Amortization of intangible assets      (4,039) (4,724) (16,213) (18,024)
Deduct: Facility exit costs      - - - (2,171)
Deduct: Transaction costs related to business combinations      - - (4,001) -
              
Non-GAAP adjusted operating expenses      $289,356 $248,191 $1,124,877 $947,550
              
              
       Three Months Ended Twelve Months Ended
       February 28, February 28, February 28, February 28,
       2015 2014 2015 2014
              
GAAP operating income      $67,608 $59,300 $249,994 $232,289
              
Add: Non-cash share-based compensation expense      36,290 30,578 135,232 113,774
Add: Amortization of intangible assets      6,615 7,232 26,885 28,204
Add: Facility exit costs      - - - 2,171
Add: Transaction costs related to business combinations      - - 4,001 -
              
Non-GAAP adjusted operating income      $110,513 $97,110 $416,112 $376,438
              
Non-GAAP adjusted operating margin      23.8% 24.3% 23.3% 24.5%
              
              
       Three Months Ended    
       February 28, February 28, Year-Over-Year  
       2015 2014 Growth Rate  
              
GAAP subscription revenue      $405,073 $351,492 15.2%  
Adjustment for currency impact      20,187 -    
Non-GAAP subscription revenue on a constant currency basis      $425,260 $351,492 21.0%  
              
GAAP training and services revenue      $58,869 $48,905 20.4%  
Adjustment for currency impact      3,824 -    
Non-GAAP training and services revenue on a constant currency basis      $62,693 $48,905 28.2%  
              
GAAP total subscription, training and services revenue      $463,942 $400,397 15.9%  
Adjustment for currency impact      24,011 -    
Non-GAAP total subscription, training and services revenue on a constant currency basis      $487,953 $400,397 21.9%  
              
              
       Twelve Months Ended    
       February 28, February 28, Year-Over-Year  
       2015 2014 Growth Rate  
              
GAAP subscription revenue      $1,561,234 $1,336,771 16.8%  
Adjustment for currency impact      27,939 -    
Non-GAAP subscription revenue on a constant currency basis      $1,589,173 $1,336,771 18.9%  
              
GAAP training and services revenue      $228,255 $197,844 15.4%  
Adjustment for currency impact      7,960 -    
Non-GAAP training and services revenue on a constant currency basis      $236,215 $197,844 19.4%  
              
GAAP total subscription, training and services revenue      $1,789,489 $1,534,615 16.6%  
Adjustment for currency impact      35,899 -    
Non-GAAP total subscription, training and services revenue on a constant currency basis      $1,825,388 $1,534,615 18.9%  

 

 

 

  • 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.