Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its third fiscal quarter ended November 30, 2007. Red Hat's current fiscal year will end February 29, 2008.
Total revenue for the quarter was $135.4 million, an increase of 28% from the year ago quarter and 6% from the prior quarter. Subscription revenue was $115.7 million, up 30% year-over-year and 6% sequentially.
Net income for the quarter was $20.3 million, or $0.10 per diluted share, compared with $18.2 million, or $0.09 per diluted share, for the prior quarter and $14.6 million, or $0.07 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $39.7 million, or $0.19 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 $36.9 million, or $0.17 per diluted share, in the prior quarter and $30.1 million, or $0.14 per diluted share, in the year ago period.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $76.7 million for the quarter, up 24% from the year ago quarter and 20% sequentially. Total cash, cash equivalents and investments as of November 30, 2007 were $1.3 billion. At quarter end, Red Hat's total deferred revenue balance was $422.6 million, an increase of 36% year-over-year and 12% sequentially.
Other highlights of the quarter included the following:
- Red Hat has been named the leader in vendor value and satisfaction by the independent Ziff Davis' 2007 "CIO Insight Vendor Value" survey, which polls IT executives on the value and reliability delivered by vendors. This marks the third time in four years that the company has been ranked #1 among all global IT vendors, and the fourth consecutive year Red Hat has been named the most valued enterprise software vendor. Red Hat also received a remarkable 97% customer loyalty rating from the CIOs polled in the survey.
- Red Hat introduced the JBoss Advanced Partner Program, that offers value-added resellers (VARs) and systems integrators (SIs) in North America the tools, resources and support to increase their share in the middleware segment. Red Hat has already teamed with over 70 JBoss-specific channel partners worldwide.
"We are very pleased to be recognized by CIO's for the fourth consecutive year as the most valued Enterprise Software Vendor and best overall IT Vendor for the third time in four years," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "There is a direct correlation between our ability to deliver real business value and the loyalty of our large and growing customer base. As a result of strong market demand and solid execution from our worldwide organization, we were able to deliver another strong financial performance in the third quarter and we are optimistic about our outlook."
JBoss World Orlando, the third-annual conference and exhibition, will take place at the Marriott Orlando World Center Resort in Orlando, FL, February 12-15, 2008. The fourth-annual Red Hat Summit will take place June 18-20, 2008 at the Hynes Convention Center in Boston, MA.
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, 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 Nine Months Ended
------------------- -------------------
Nov 30, Nov. 30, Nov. 30, Nov. 30,
2007 2006 2007 2006
------------------- -------------------
Revenue:
Subscriptions $115,732 $ 88,860 $327,949 $245,300
Training and services 19,649 16,966 53,575 44,202
--------- --------- --------- ---------
Total subscription,
training and services
revenue 135,381 105,82 381,524 289,502
--------- --------- --------- ---------
Cost of revenue:
Subscriptions 8,099 6,741 24,192 20,123
Training and services 12,827 10,699 35,062 27,183
--------- --------- --------- ---------
Total cost of subscription,
training and services
revenue 20,926 17,440 59,254 47,306
--------- --------- --------- ---------
Total gross profit 114,455 88,386 322,270 242,196
Operating expense:
Sales and marketing 47,653 37,575 139,955 105,883
Research and development 25,930 19,200 71,101 51,084
General and administrative 21,419 18,024 59,013 49,579
--------- --------- --------- ---------
Total operating expense 95,002 74,799 270,069 206,546
--------- --------- --------- ---------
Income from operations 19,453 13,587 52,201 35,650
Other income, net 14,440 11,113 42,048 31,288
Interest expense (1,581) (1,494) (4,641) (4,467)
--------- --------- --------- ---------
Income before provision
(benefit) for income taxes 32,312 23,206 89,608 62,571
Provision (benefit) for income
taxes 12,029 8,586 34,947 23,151
--------- --------- --------- ---------
Net income $ 20,283 $ 14,620 $ 54,661 $ 39,420
========= ========= ========= =========
Net income-diluted $ 21,177 $ 15,543 $ 57,342 $ 42,189
========= ========= ========= =========
Net income per share:
Basic $ 0.10 $ 0.08 $ 0.28 $ 0.21
Diluted $ 0.10 $ 0.07 $ 0.26 $ 0.19
Weighted average shares
outstanding:
Basic 194,038 191,298 194,741 188,379
Diluted 221,547 219,458 222,740 218,591
Diluted net income per share
computation:
GAAP Net income, basic $ 20,283 $ 14,620 $ 54,661 $ 39,420
Interest expense on convertible
debentures, net of related
GAAP tax effects 435 449 1,304 1,347
Amortization of debt issuance
costs, net of related GAAP tax
effects 459 474 1,377 1,422
GAAP Net income, diluted $ 21,177 $ 15,543 $ 57,342 $ 42,189
========= ========= ========= =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Nov. 31, Feb. 28,
2007 2007
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 586,959 $ 527,239
Investments in debt securities 454,361 350,827
Accounts receivable, net 108,329 87,973
Prepaid expenses and other current assets 74,126 41,026
----------- -----------
Total current assets 1,223,775 1,007,065
Property and equipment, net 58,138 45,258
Goodwill 339,739 328,837
Identifiable intangibles, net 95,778 94,314
Investments in debt securities 288,381 278,028
Other assets, net 31,929 32,352
----------- -----------
Total assets $2,037,740 $1,785,854
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,439 $ 12,062
Accrued expenses 48,176 38,472
Deferred revenue 301,704 249,615
Other current obligations 58 214
----------- -----------
Total current liabilities 360,377 300,363
Deferred lease credits 5,103 5,235
Long term deferred revenue 120,890 89,020
Other long term obligations 23,543 -
Convertible debentures 570,000 570,000
Stockholders' equity:
Common stock 21 20
Additional paid-in capital 1,135,002 1,040,892
Accumulated deficit (50,208) (92,092)
Treasury stock, at cost (126,406) (125,789)
Accumulated other comprehensive loss (582) (1,795)
----------- -----------
Total stockholders' equity 957,827 821,236
----------- -----------
Total liabilities and stockholders' equity $2,037,740 $1,785,854
=========== ===========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Cash flows from
operating
activities:
Net income $20,283 $14,620 $54,661 $39,420
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 8,443 6,594 23,897 17,691
Deferred income
taxes 10,343 3,501 28,557 13,003
Share-based
compensation
expense 9,455 8,495 26,422 24,421
Excess tax
benefits from
share-based
payment
arrangements (17,087) (2,368) (44,206) (5,243)
Provision for
doubtful
accounts 469 281 856 983
Amortization of
debt issuance
costs 752 752 2,257 2,256
Other 8 (16) 165 (305)
Changes in
operating assets
and liabilities
net of effects of
acquisitions:
Accounts
receivable and
earnings in
excess of
billings (16,986) (10,446) (16,741) (10,628)
Prepaid expenses
and other
current assets (1,674) 243 (1,673) (2,002)
Accounts payable 148 3,030 (1,959) 3,539
Accrued expenses 9,660 9,595 7,278 9,438
Deferred revenue 35,759 25,486 69,181 63,565
Other assets 65 (91) (132) (206)
Net cash provided
by operating
activities 59,638 59,676 148,563 155,932
----------- ----------- ----------- ------------
Cash flows from
investing
activities:
Purchase of
investment
securities (354,569) - (863,159) (7,444)
Proceeds from
sales and
maturities of
investment
securities 344,345 166,810 753,303 522,862
Acquisitions of
businesses, net
of cash acquired - (302) (11,784) (149,864)
Purchase of
property and
equipment (10,971) (5,766) (25,752) (14,751)
Purchase of
developed
software and
other intangible
assets (422) - (4,775) -
----------- ----------- ----------- ------------
Net cash provided
by (used in)
investing
activities (21,617) 160,742 (152,167) 350,803
----------- ----------- ----------- ------------
Cash flows from
financing
activities:
Excess tax
benefits from
share-based
payment
arrangements 17,087 2,368 44,206 5,243
Net proceeds from
issuance of
common stock
under Employee
Stock Purchase
Plan - - - 306
Proceeds from
exercise of
common stock
options 5,390 2,966 13,920 14,650
Purchase of
treasury stock (482) (66) (618) (1,598)
Structured stock
repurchase - 1,514 - 1,514
Proceeds from
other borrowings - - 2,898 -
Payments on other
borrowings - (223) (757) (255)
----------- ----------- ----------- ------------
Net cash provided
by financing
activities 21,995 6,559 59,649 19,860
----------- ----------- ----------- ------------
Effect of foreign
currency exchange
rates on cash and
cash equivalents 2,324 834 3,675 1,850
Net increase in
cash and cash
equivalents 62,340 227,811 59,720 528,445
Cash and cash
equivalents at
beginning of the
period 524,619 568,181 527,239 267,547
----------- ----------- ----------- ------------
Cash and cash
equivalents at end
of period $586,959 $795,992 $586,959 $795,992
=========== =========== =========== ============
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
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 Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Cost of revenue $583 $558 $1,736 $1,607
Sales and
marketing 2,637 2,181 7,587 6,753
Research and
development 2,208 1,882 6,452 5,150
General and
administration 4,027 3,874 10,647 10,911
----------- ----------- ----------- ------------
Total stock based
compensation
expense $9,455 $8,495 $26,422 $24,421
=========== =========== =========== ============
Reconciliation of GAAP results
to non-GAAP adjusted results
Three Months Ended Nine Months Ended
------------------------ -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP net income $20,283 $14,620 $54,661 $39,420
GAAP provision for
income taxes 12,029 8,586 34,947 23,151
----------- ----------- ----------- ------------
GAAP income before
provision for
income taxes $32,312 $23,206 $89,608 $62,571
Add: Share-based
compensation per
FAS 123R 9,455 8,495 26,422 24,421
----------- ----------- ----------- ------------
Non-GAAP adjusted
income before
provision for
income taxes $41,767 $31,701 $116,030 $86,992
Non-GAAP cash
provision for
income taxes $2,088 $1,585 $5,801 $4,350
----------- ----------- ----------- ------------
Non-GAAP adjusted
net income $39,679 $30,116 $110,229 $82,642
=========== =========== =========== ============
Non-GAAP adjusted
net income-diluted $41,071 $31,508 $114,404 $86,817
=========== =========== =========== ============
Non-GAAP adjusted
net income per
share:
Basic $0.20 $0.16 $0.57 $0.44
Diluted $0.19 $0.14 $0.51 $0.40
Non-GAAP diluted
net income per
share computation:
Non-GAAP adjusted
net income $39,679 $30,116 $110,229 $82,642
Interest expense on
convertible
debentures, net of
related 5% cash
tax effects 677 677 2,031 2,031
Amortization of
debt issuance
costs, net of
related 5% cash
tax effects 715 715 2,144 2,144
----------- ----------- ----------- ------------
Non-GAAP adjusted
net income-diluted $41,071 $31,508 $114,404 $86,817
=========== =========== =========== ============
Reconciliation of GAAP cash flows from operating activities to non-
GAAP adjusted cash flows from operating activities
Three Months Ended Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP net cash
provided by
operating
activities $59,638 $59,676 $148,563 $155,932
Add: Excess tax
benefits from
share-based
payment
arrangements 17,087 2,368 44,206 5,243
----------- ----------- ----------- ------------
Non-GAAP net cash
provided by
operating
activities $76,725 $62,044 $192,769 $161,175
=========== =========== =========== ============
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 Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP Gross profit $114,455 $88,386 $322,270 $242,196
Add: Non-cash
share-based
compensation per
FAS 123R 583 558 1,736 1,607
---------- ---------- ---------- -----------
Non-GAAP gross
profit $115,038 $88,944 $324,006 $243,803
---------- ---------- ---------- -----------
Non-GAAP gross
margin 85% 84% 85% 84%
Three Months Ended Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP operating
expenses $95,002 $74,799 $270,069 $206,546
Deduct: Non-cash
share-based
compensation per
FAS 123R (8,872) (7,937) (24,686) (22,814)
----------- ----------- ----------- ------------
Non-GAAP adjusted
operating expenses $86,130 $66,862 $245,383 $183,732
---------- ---------- ---------- -----------
Three Months Ended Nine Months Ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
GAAP operating
income $19,453 $13,587 $52,201 $35,650
Add: Non-cash
share-based
compensation per
FAS 123R 9,455 8,495 26,422 24,421
---------- ---------- ---------- -----------
Non-GAAP adjusted
operating income $28,908 $22,082 $78,623 $60,071
---------- ---------- ---------- -----------
Non-GAAP adjusted
operating margin 21.4% 20.9% 20.6% 20.7%
- 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.