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Red Hat Reports First Quarter Results (Q1FY2016)

RALEIGH, N.C -
  • First quarter total revenue of $481 million, up 14% year-over-year
  • First quarter subscription revenue of $425 million, up 14% year-over-year
  • First quarter operating cash flow of $209 million, up 27% year-over-year

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2016 first quarter ended May 31, 2015.

Total revenue for the quarter was $481 million, an increase of 14% in U.S. dollars from the year ago quarter, and 22% measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $425 million, up 14% in U.S. dollars year-over-year, or 23% measured in constant currency. Total revenue for the first quarter of fiscal 2016 included an additional $5 million of subscription revenue earned from Red Hat’s Certified Cloud Providers (CCP). This one-time adjustment results from a change in our ability to estimate revenue earned through the CCP program.

“Our solid start to fiscal year 2016 was evidenced by strong constant currency revenue growth of over 20%,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “This strong growth reflects in part the demand for our open, hybrid cloud technologies across four footprints: bare metal, virtualization, private cloud and public cloud deployments. Red Hat’s portfolio of technologies becomes increasingly strategic to customers who are looking to expand their capabilities and agility to build and deploy applications across these data center footprints.”

“We delivered Q1 results which exceeded the high-end of our guidance for total revenue, non-GAAP operating margin and non-GAAP EPS before the adjustment which added the incremental $5 million of earned revenue from our CCP program,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat.

GAAP operating income for the first quarter was $71 million, up 39% year-over-year. After adjusting for stock compensation, amortization expenses and transaction costs related to business combinations, as detailed in the tables below, non-GAAP operating income for the first quarter was $113 million, up 28% year-over-year.  For the first quarter, GAAP operating margin was 14.7% and non-GAAP operating margin was 23.6%.

GAAP net income for the quarter was $48 million, or $0.26 per diluted share, compared with $38 million, or $0.20 per diluted share, in the year ago quarter. 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, non-GAAP net income for the quarter was $81 million, or $0.44 per diluted share, as compared to $64 million, or $0.34 per diluted share, in the year ago quarter. Non-GAAP diluted weighted average shares outstanding excludes any dilution resulting from the convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions. Both GAAP and non-GAAP earnings per diluted share benefited from the one-time earned revenue adjustment by approximately $0.02 in the first quarter of fiscal 2016.   

Operating cash flow was $209 million for the first quarter, an increase of 27% on a year-over-year basis. At quarter end, the company’s total deferred revenue balance was $1.44 billion, an increase of 13% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2015 was $1.97 billion.  

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, Red Hat Enterprise Linux, the Shadowman logo, and JBoss are trademarks of Red Hat, Inc., registered in the U.S. and other countries. Linux is the registered trademark of Linus Torvalds in the U.S. and other countries.

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
           
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
Revenue:          
           
 Subscriptions     $424,793 $371,968 
 Training and services     56,208 51,786 
           
           
  Total subscription, training and services revenue    481,001 423,754 
           
Cost of revenue:          
           
 Subscriptions     29,846 27,760 
 Training and services     41,551 36,683 
           
           
  Total cost of subscription, training and services revenue    71,397 64,443 
           
           
 Total gross profit     409,604 359,311 
           
Operating expense:          
 Sales and marketing     198,872 176,838 
 Research and development     97,431 89,939 
 General and administrative     42,371 41,571 
           
           
  Total operating expense    338,674 308,348 
           
Income from operations      70,930 50,963 
 Interest income     2,715 1,842 
 Interest expense     5,715 53 
 Other income (expense), net     (203) 410 
           
           
Income before provision for income taxes      67,727 53,162 
Provision for income taxes      19,641 15,417 
           
Net income      $48,086 $37,745 
           
Net income per share:          
 Basic     $0.26 $0.20 
 Diluted     $0.26 $0.20 
           
Weighted average shares outstanding:          
 Basic     183,131 189,372 
 Diluted     186,175 191,457 

 

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
           
ASSETS
        May 31, February 28,
        2015 2015 (1)
        (Unaudited)  
Current assets:          
 Cash and cash equivalents      $990,922 $1,047,473
 Investments in debt and equity securities      192,818 215,254
 Accounts receivable, net      284,582 468,021
 Deferred tax assets, net      81,782 86,796
 Prepaid expenses      149,163 150,715
 Other current assets      1,647 1,980
           
   Total current assets    1,700,914 1,970,239
           
 Property and equipment, net      168,391 172,151
 Goodwill      924,735 927,060
 Identifiable intangibles, net      130,722 134,276
 Investments in debt securities      784,734 546,016
 Other assets, net      50,784 53,243
           
   Total assets    $3,760,280 $3,802,985
           
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:          
 Accounts payable and accrued expenses      $176,965 $237,733
 Deferred revenue      1,066,254 1,095,115
 Other current obligations      1,767 1,844
           
   Total current liabilities    1,244,986 1,334,692
           
 Convertible notes      720,001 715,402
 Long term deferred revenue      369,865 387,213
 Other long term obligations      76,005 77,340
Stockholders' equity:          
 Common stock      23 23
 Additional paid-in capital      2,058,046 1,963,851
 Retained earnings      948,459 900,373
 Treasury stock, at cost      (1,590,501) (1,515,288)
 Accumulated other comprehensive loss      (66,604) (60,621)
           
   Total stockholders' equity    1,349,423 1,288,338
           
   Total liabilities and stockholders' equity    $3,760,280 $3,802,985
           
           
   (1) Derived from audited financial statements       
           

 

 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
           
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
           
Cash flows from operating activities:          
Net income      $48,086 $37,745 
Adjustments to reconcile net income to net cash provided by          
operating activities:          
 Depreciation and amortization     18,547 18,924 
 Share-based compensation expense     36,522 28,714 
 Deferred income taxes     1,914 2,930 
 Net amortization of bond premium on available-for-sale debt securities     2,597 2,033 
 Accretion of debt discount and amortization of debt issuance costs     5,195 - 
 Other     830 (948) 
Changes in operating assets and liabilities net of effects of acquisitions:          
 Accounts receivable     179,387 96,580 
 Prepaid expenses     (427) (5,189) 
 Accounts payable and accrued expenses     (52,346) 2,655 
 Deferred revenue     (31,562) (19,749) 
 Other     15 991 
           
  Net cash provided by operating activities    208,758 164,686 
           
Cash flows from investing activities:          
 Purchase of available-for-sale debt securities     (406,211) (268,574) 
 Proceeds from sales and maturities of available-for-sale debt securities     182,583 269,431 
 Acquisition of businesses, net of cash acquired     - (151,621) 
 Purchase of other intangible assets     (3,929) (553) 
 Purchase of property and equipment     (10,696) (8,594) 
 Other     (2,000) 3,472 
           
  Net cash used in investing activities    (240,253) (156,439) 
           
Cash flows from financing activities:          
 Excess tax benefits from share-based payment arrangements     6,419 986 
 Proceeds from exercise of common stock options     2,109 45 
 Purchase of treasury stock     - (80,033) 
 Payments related to net settlement of employee share-based compensation awards     (25,211) (13,729) 
 Payments on other borrowings     (351) (355) 
           
  Net cash used in financing activities    (17,034) (93,086) 
           
 Effect of foreign currency exchange rates on cash and cash equivalents     (8,022) 2,245 
 Net decrease in cash and cash equivalents     (56,551) (82,594) 
 Cash and cash equivalents at beginning of the period     1,047,473 646,742 
           
Cash and cash equivalents at end of period      $990,922 $564,148 
           
           

 

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 
       May 31, May 31, 
       2015 2014 
           
 Cost of revenue     $3,727 $3,118 
 Sales and marketing     15,412 10,238 
 Research and development     10,874 8,864 
 General and administration     6,509 6,494 
 Total share-based compensation expense     $36,522 $28,714 
           
           
Amortization of intangible assets expense included in Consolidated Statements of Operations:          
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
           
 Cost of revenue     $2,573 $2,615 
 Sales and marketing     2,005 1,582 
 Research and development     250 959 
 General and administration     1,052 1,428 
 Total amortization of intangible assets expense     $5,880 $6,584 
           
           
Non-cash interest expense from accretion of debt discount included in Consolidated Statements of Operations:          
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
           
 Total non-cash interest expense from accretion of debt discount     $4,599 - 
           
Transaction costs related to business combinations included in Consolidated Statements of Operations:          
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
           
 Transaction costs related to business combinations     - $1,991 
           
           
       Three Months Ended 
       May 31, May 31, 
       2015 2014 
           
GAAP net income      $48,086 $37,745 
           
Provision for income taxes      19,641 15,417 
           
GAAP income before provision for income taxes      $67,727 $53,162 
           
Add: Non-cash share-based compensation expense      36,522 28,714 
Add: Amortization of intangible assets      5,880 6,584 
Add: Non-cash interest expense from accretion of debt discount      4,599 - 
Add: Transaction costs related to business combinations      - 1,991 
           
Non-GAAP adjusted income before provision for income taxes      $114,728 $90,451 
           
Provision for income taxes      33,271 26,231 
           
Non-GAAP adjusted net income (basic and diluted)      $81,457 $64,220 
           
Non-GAAP adjusted diluted weighted average shares outstanding:          
 GAAP diluted weighted average shares outstanding     186,175 191,457 
 Dilution offset from convertible note hedge transactions     (51) - 
 Non-GAAP diluted weighted average shares outstanding     186,124 191,457 
           
Non-GAAP adjusted net income per share:          
 Basic     $0.44 $0.34 
 Diluted     $0.44 $0.34 
           

 

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   
       May 31, May 31,   
       2015 2014   
             
GAAP gross profit      $409,604 $359,311   
             
Add: Non-cash share-based compensation expense      3,727 3,118   
Add: Amortization of intangible assets      2,573 2,615   
             
Non-GAAP gross profit      $415,904 $365,044   
             
Non-GAAP gross margin      86.5% 86.1%   
             
             
       Three Months Ended   
       May 31, May 31,   
       2015 2014   
             
GAAP operating expenses      $338,674 $308,348   
             
Deduct: Non-cash share-based compensation expense      (32,795) (25,596)   
Deduct: Amortization of intangible assets      (3,307) (3,969)   
Deduct: Transaction costs related to business combinations      - (1,991)   
             
Non-GAAP adjusted operating expenses      $302,572 $276,792   
             
             
       Three Months Ended   
       May 31, May 31,   
       2015 2014   
             
GAAP operating income      $70,930 $50,963   
             
Add: Non-cash share-based compensation expense      36,522 28,714   
Add: Amortization of intangible assets      5,880 6,584   
Add: Transaction costs related to business combinations      - 1,991   
             
Non-GAAP adjusted operating income      $113,332 $88,252   
             
Non-GAAP adjusted operating margin      23.6% 20.8%   
             
             
       Three Months Ended   
       May 31, May 31,  Year-Over-Year
       2015 2014  Growth Rate
             
GAAP subscription revenue      $424,793 $371,968  14.2%
Adjustment for currency impact      31,205 -   
Non-GAAP subscription revenue on a constant currency basis      $455,998 $371,968  22.6%
             
GAAP training and services revenue      $56,208 $51,786  8.5%
Adjustment for currency impact      5,003 -   
Non-GAAP training and services revenue on a constant currency basis      $61,211 $51,786  18.2%
             
GAAP total subscription, training and services revenue      $481,001 $423,754  13.5%
Adjustment for currency impact      36,208 -   
Non-GAAP total subscription, training and services revenue on a constant currency basis      $517,209 $423,754  22.1%
             
             

 

 

 

  • 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 a 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 the ability of the Company to compete effectively; the ability to deliver and stimulate demand for new products and technological innovations on a timely basis; delays or reductions in information technology spending; the effects of industry consolidation; 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; 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 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 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.