Red Hat Reports Strong Fiscal First Quarter Operating Results

Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for the first quarter of its fiscal 2007 year.

Total revenue for the quarter was $84.0 million, an increase of 38% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $71.5 million, up 45% year-over-year and 7% sequentially.

The company reported operating income of $12.6 million for the quarter, including $7.6 million of non-cash stock compensation expense related to the implementation of FAS123R. FAS123R, which requires the expensing of non-cash stock option grants and other equity awards, was not applicable in prior quarters.

GAAP net income for the quarter was $13.8 million, or $0.07 per share, at an estimated annual effective GAAP tax rate of 37% of pre-tax income. However, the company continues to anticipate an actual cash tax rate of approximately 5% of pre-tax income for the foreseeable future.

At quarter end, the company's total deferred revenue balance was $254.7 million, an increase of 61% on a year-over-year basis and 14% sequentially.

Other highlights from the quarter included:

• Quarterly gross margin improved to 84% from 79% in the year ago period.
• Total cash and investments as of May 31, 2006 were $1.1 billion.
• On June 2, the company closed its previously announced acquisition of JBoss, Inc.
• Red Hat held its second annual partner and customer Summit in Nashville, TN.

"The first fiscal quarter marks a great start to an exciting year for Red Hat," stated Charlie Peters, Executive Vice President and Chief Financial Officer. "In particular, we continued to deliver rapid top-line growth and market share gains. While profitability comparisons to prior periods' results are skewed as a result of the implementation of FAS123R and a higher non-cash tax rate, the company's core operations continue to improve in efficiency as evidenced by our growing cash flow. Furthermore, the actual cash that we have to invest back into the business to drive growth is not affected by the accounting treatment."

Peters added, "The international expansion and acquisitions closed since our last earnings report provide for new opportunities in key international geographies such as India and South America and improve our ability to capitalize on growing open source adoption beyond the operating system. Equally important, we are confident that we have the proper team in place to execute successfully on these initiatives."

View the earnings tables.

About Red Hat, Inc.

Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. The most trusted name in open source, CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. 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

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 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 the company's intellectual property and the potential for infringement or breach of license claims regarding third party intellectual property; risks related to data and information security vulnerabilities; ineffective management of, and dependence on key personnel as well as other factors contained in our most recent Annual Report on Form 10-K (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 statement 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.

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