Red Hat Delivers Solid Earnings

At the end of last week, we reported the results for Red Hat’s Fiscal 4th quarter and Fiscal Year 2008. Initial street reaction to our announcement was positive and has been reflected in the press and through trading in the days since the call. Some earnings highlights include:

4Q08 financial highlights

• Revenue: $141.5 million, up 27% y/y
• Subscription revenue: $121.9 million, up 27% y/y
• Bookings: over $200 million
• Cash & investments balance: $1.3 billion
• Repurchased $66 million of our common stock in the quarter

FY08 financial highlights

• Annual revenue $523 million, up 31% y/y
• Subscription revenue $450 million, up 32% y/y
• Deferred revenue of $473 million, up 40% y/y

Last week’s earnings marks the another quarter that Red Hat has posted strong financial results, showing consistent success with our business model, products and services. Many investors and analysts have reacted positively to our ability to deliver strong growth in a softening economy through the value we share with customers. In addition, many investors noted the performance of our JBoss business in Q4 (one third of the top deals this quarter included middleware technology) as a signal for further open source adoption in the data center. As we continue to focus on our core business, here is feedback that we’ve received from some of our financial analysts since last week’s earnings:

• S&P has raised its rating on RHT debt from a B+ to a BB-
• Lehman Brothers stated, "RHT reported a solid Q4 and provided a positive outlook in the face of economic uncertainty. We are encouraged by two quarters in a row of solid execution…"
• Oppenheimer & Co., Inc. said, "JBoss growth appears to be starting to reach management’s expectations…While the near-term investment will likely limit EPS upside in 1HFY09, underlying demand trends appear strong and recent JBoss traction could offer boost to growth if sustained."
• Deutsche Bank said, "We view Red Hat’s F4Q08 earnings and outlook as a generally good quarter. Better than expected top-line momentum was balanced by lower than expected margins as the company increases investments to drive higher revenue growth."
• JP Morgan said, "Guidance will bring upward revenue estimate revisions but further reinvestment and below the line items will modestly lower earnings; overall, we expect operating margins to be flat in FY09. FQ4 was not perfectly clean, but the strong deferred revenue and billings trends should alleviate demand-related concerns and will be the takeaways".

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