Red Hat, Inc.
Dec 22, 2008

Red Hat Reports Third Quarter Results

  
     * Revenue of $165.3 million, up 22% year over year and within guidance
       on a comparable currency basis
     * GAAP EPS of 12 cents, Non-GAAP EPS of 24 cents exceeds guidance
     * Operating Cash-flow of $59.1 million


   RALEIGH, N.C. -- December 22, 2008

   Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source
   solutions, today announced financial results for its fiscal year 2009
   third quarter ended November 30, 2008.

   Total revenue for the quarter was $165.3 million, an increase of 22% from
   the year ago quarter and 1% from the prior quarter. Subscription revenue
   for the quarter was $135.5 million, up 17% year-over-year and flat
   sequentially.

   Foreign exchange rate changes during the quarter, as compared to the
   second quarter, reduced quarterly revenues and expenses by $6.9 million
   and $4.8 million, respectively, resulting in a negative impact on
   operating income of $2.1 million. For the quarter, GAAP operating income
   was $21.0 million, or a 12.7% operating margin. After adjusting for stock
   compensation and amortization expenses, non-GAAP operating income was
   $38.4 million, or a 23.2% operating margin, up 120 basis points from the
   prior quarter despite the strengthening US dollar and the Qumranet
   acquisition.

   Net income for the quarter was $24.3 million, or $0.12 per diluted share,
   compared with $20.3 million, or $0.10 per diluted share, in the year ago
   quarter. Non-GAAP adjusted net income for the quarter was $48.4 million,
   or $0.24 per diluted share, after adjusting for stock compensation,
   amortization and tax expense as detailed in the tables below. This
   compares to non-GAAP adjusted net income of $42.8 million, or $0.20 per
   diluted share in the year ago quarter.

   Operating cash flow totaled $59.1 million, compared to $59.6 million from
   the year ago quarter and $54.3 million from the prior quarter. At quarter
   end, the company?s total deferred revenue balance was $505.1 million, an
   increase of 20% on a year-over-year basis and 2% sequentially. Total cash,
   cash equivalents and investments as of November 30, 2008 were $1.1 billion
   after retiring $285 million of convertible debentures and repurchasing 2
   million shares of common stock.

   Subsequent to these repurchases, the Company?s Board of Directors
   authorized a new common stock repurchase program with a capacity of up to
   $250 million.

   ?Our solid financial results this quarter reflect our strong market
   position as the low cost, high value provider of infrastructure
   solutions,? stated Jim Whitehurst, President and Chief Executive Officer
   of Red Hat. ?Purchasing decisions for IT have changed dramatically for
   CIOs. In this budget-constrained environment, IT professionals are
   adopting open source and more specifically Red Hat to save money and
   enhance their competitiveness.?

   "This was a strong quarter where we delivered better-than-expected
   operating income, net income and cash flow,? stated Charlie Peters,
   Executive Vice President and Chief Financial Officer of Red Hat. ?While
   significant devaluations in most foreign currencies depressed our reported
   revenue, a combination of focused cost management and natural currency
   hedging enabled the company to deliver better-than-expected operating
   margin.

   We also took advantage of unusual market conditions and repurchased some
   of our convertible bonds and common stock. This action reduced the diluted
   shares outstanding by approximately 11 million, or 6%, and produced a gain
   of $4.1 million, both improving earnings per share. Our balance sheet
   remains very strong.?

   Other highlights include the following:

     * Red Hat announced an agreement with Fujitsu to provide new Linux
       support services that are designed to provide quicker response times
       and extended support periods for mission-critical systems through the
       Red Hat Advanced Mission Critical Program. The Program combines the
       mainframe expertise of Fujitsu with the enterprise Linux expertise of
       Red Hat.
     * Red Hat Chairman Matthew Szulik was named Ernst & Young's Overall
       National Winner for Entrepreneur of the Year 2008 Award.
     * Red Hat continued to develop its capabilities and offerings in
       virtualization. Early in the quarter, Red Hat acquired Qumranet Inc.
       which accelerates the time to market to deliver an expanded
       virtualization solutions portfolio.

   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 65 offices spanning the globe. CIOs
   ranked Red Hat first for value in Enterprise Software for four consecutive
   years in the CIO Insight Magazine Vendor Value survey. 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 JBoss Enterprise
   Middleware. Red Hat also offers support, training and consulting services
   to its customers worldwide. 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 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 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 conditions, and governmental
   and public policy changes. 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
                         November      November      November      November
                         30,           30,           30,           30,
                         2008          2007          2008          2007
   Revenue:
                                                                    
       Subscriptions     $ 135,451     $ 115,732     $ 401,854     $ 327,949
       Training and        29,881        19,649        84,497        53,575   

       services
                                                                    
           Total
           subscription,
           training and    165,332       135,381       486,351       381,524  

           services
           revenue
                                                                    
   Cost of revenue:
                                                                    
       Subscriptions       8,771         8,099         27,448        24,192
       Training and        17,765        12,827        53,025        35,062   

       services
                                                                    
           Total cost of
           subscription,
           training and    26,536        20,926        80,473        59,254   

           services
           revenue
                                                                    
     Total gross profit    138,796       114,455       405,878       322,270
                                                                    
   Operating expense:
     Sales and marketing   58,514        47,653        177,350       139,955
     Research and          34,544        25,930        95,184        71,101
     development
     General and           24,768        21,419        71,060        59,013   

     administrative
                                                                    
       Total operating     117,826       95,002        343,594       270,069  

       expense
                                                                    
   Income from             20,970        19,453        62,284        52,201
   operations
   Other income, net       13,795        14,440        38,593        42,048
   Interest expense        (1,249  )     (1,581  )     (4,365  )     (4,641  )
                                                                    
   Income before
   provision for income    33,516        32,312        96,512        89,608
   taxes
   Provision for income    9,211         12,029        33,779        34,947   

   taxes
                                                                    
   Net income            $ 24,305      $ 20,283      $ 62,733      $ 54,661   
                                                                    
   Net income-diluted    $ 25,147      $ 21,177      $ 65,392      $ 57,342   

                                                                    
   Net income per share:
     Basic               $ 0.13        $ 0.10        $ 0.33        $ 0.28
     Diluted             $ 0.12        $ 0.10        $ 0.30        $ 0.26
                                                                    
   Weighted average
   shares outstanding:
     Basic                 190,665       194,038       190,978       194,741
     Diluted               208,408       221,547       215,605       222,740
                                                                    
   Diluted net income
   per share
   computation:
   GAAP Net income,      $ 24,305      $ 20,283      $ 62,733      $ 54,661
   basic
   Interest expense on
   convertible
   debentures, net of      387           435           1,273         1,304
   related GAAP tax
   effects
   Amortization of debt
   issuance costs, net     455           459           1,386         1,377    

   of related GAAP tax
   effects
                                                                    
   GAAP Net income,      $ 25,147      $ 21,177      $ 65,392      $ 57,342   
   diluted

   RED HAT, INC.
   CONSOLIDATED BALANCE SHEETS
   (In thousands)
                                  

   ASSETS
                                                 November 30,   February 29,
                                                 2008           2008
                                                 (Unaudited)
   Current assets:
     Cash and cash equivalents                   $ 519,837      $ 677,720
     Investments in debt and equity securities     238,794        312,442
     Accounts receivable, net                      113,162        127,002
     Prepaid expenses and other current assets     78,142         75,192     
                                                                 
           Total current assets                    949,935        1,192,356
                                                                 
     Property and equipment, net                   68,249         68,557
     Goodwill                                      437,713        340,314
     Identifiable intangibles, net                 126,260        93,823
     Investments in debt securities                317,821        341,781
     Other assets, net                             64,501         43,151     

                                                                 
           Total assets                          $ 1,964,479    $ 2,079,982  
                                                                 
   LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
     Accounts payable                            $ 10,779       $ 17,341
     Accrued expenses                              58,345         43,260
     Deferred revenue                              352,701        339,088
     Convertible debentures                        285,500        570,000
     Other current obligations                     898            59         

                                                                 
        Total current liabilities                  708,223        969,748
                                                                 
     Deferred lease credits                        4,630          4,977
     Long term deferred revenue                    152,416        133,805
     Other long term obligations                   19,329         20,261
     Convertible debentures                        -              -
   Stockholders' equity:
     Common stock                                  21             21
     Additional paid-in capital                    1,267,432      1,170,328
     Retained earnings (accumulated deficit)       34,531         (28,202   )
     Treasury stock, at cost                       (232,311  )    (192,946  )
     Accumulated other comprehensive income        10,208         1,990      
     (loss)
                                                                 
           Total stockholders' equity              1,079,881      951,191    

                                                                 
           Total liabilities and stockholders'   $ 1,964,479    $ 2,079,982  
           equity

   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           2008           2007
                    2008
                                                                  
   Cash flows from
   operating
   activities:
   Net income       $ 24,305       $ 20,283       $ 62,733       $ 54,661
   Adjustments to
   reconcile net
   income to net
   cash provided by
   operating                                                      
   activities:
       Depreciation
       and            10,561         8,443          29,486         23,897
       amortization
       Deferred       7,031          10,343         27,260         28,557
       income taxes
       Excess tax
       benefits
       from           (14,790  )     (17,087  )     (39,246  )     (44,206  )
       share-based
       payment
       arrangements
       Share-based
       compensation   12,251         9,455          33,682         26,422
       expense
       Gain on sale
       of strategic   -              -              (4,996   )     -
       equity
       investments
       Gain on
       repurchase
       of             (4,129   )     -              (4,129   )     -
       convertible
       debentures
       Amortization
       of debt        627            752            2,131          2,257
       issuance
       costs
       Other          314            477            177            1,021
   Changes in
   operating assets
   and liabilities
   net of effects
   of acquisitions:
       Accounts       (7,650   )     (16,986  )     13,687         (16,741  )
       receivable
       Prepaid
       expenses and
       other          (7,400   )     (1,674   )     (14,308  )     (1,673   )
       current
       assets
       Accounts       1,836          148            (6,138   )     (1,959   )
       payable
       Accrued        8,774          9,660          18,576         7,278
       expenses
       Deferred       27,503         35,759         58,217         69,181
       revenue
       Other assets   (85      )     65             (355     )     (132     )
                                                                  

       Net cash
       provided by    59,148         59,638         176,777        148,563   
       operating
       activities
                                                                  

   Cash flows from
   investing
   activities:
     Purchase of
     investment       -              (354,569 )     (331,705 )     (863,159 )
     securities
     Proceeds from
     sales and
     maturities of    77,498         344,345        427,314        753,303
     investment
     securities
     Acquisitions
     of businesses,   (101,338 )     -              (148,140 )     (11,784  )
     net of cash
     acquired
     Proceeds from
     sale of
     strategic        -              -              5,568          -
     equity
     investments
     Purchase of
     property and     (4,212   )     (10,971  )     (18,164  )     (25,752  )
     equipment
     Purchase of
     developed
     software and     (779     )     (422     )     (3,121   )     (4,775   )
     other
     intangible
     assets
                                                                  
       Net cash
       used in        (28,831  )     (21,617  )     (68,248  )     (152,167 )
       investing
       activities
                                                                  

   Cash flows from
   financing
   activities:
     Excess tax
     benefits from
     share-based      14,790         17,087         39,246         44,206
     payment
     arrangements
     Net proceeds
     (payments)
     related to
     employee         (772     )     5,390          16,017         13,920
     exercise or
     vest of
     share-based
     awards
     Repurchase of
     convertible      (280,058 )     -              (280,058 )     -
     debentures
     Purchase of      (29,999  )     (482     )     (39,365  )     (618     )
     treasury stock
     Structured
     stock            -              -              1,989          -
     repurchase
     Proceeds from
     other            -              -              -              2,898
     borrowings
     Payments on
     other            (48      )     -              (72      )     (757     )
     borrowings
                                                                  
       Net cash
       (used in)
       provided by    (296,087 )     21,995         (262,243 )     59,649    

       financing
       activities
                                                                  
   Effect of
   foreign currency
   exchange rates     (1,850   )     2,324          (4,169   )     3,675
   on cash and cash
   equivalents
   Net increase
   (decrease) in      (267,620 )     62,340         (157,883 )     59,720
   cash and cash
   equivalents
   Cash and cash
   equivalents at     787,457        524,619        677,720        527,239   

   beginning of the
   period
                                                                  
   Cash and cash
   equivalents at   $ 519,837      $ 586,959      $ 519,837      $ 586,959   
   end of period

   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     November     November      November
                           30,          30,          30,           30,
                           2008         2007         2008          2007
                                                                    
      Cost of revenue      $  723       $  583       $  2,047      $  1,736
      Sales and marketing     3,352        2,637        9,554         7,587
      Research and            3,715        2,208        9,769         6,452
      development
      General and             4,461        4,027        12,311        10,647
      administration
      Total share-based    $  12,251    $  9,455     $  33,681     $  26,422
      compensation expense
                                                                    

                                                                    
   Amortization of intangible assets
   expense included in Consolidated
   Statements of Operations:
                                                                    
                           Three Months Ended        Nine Months Ended
                           November     November     November      November
                           30,          30,          30,           30,
                           2008         2007         2008          2007
                                                                    
      Cost of revenue      $  989       $  1,127     $  2,534      $  3,203
      Sales and marketing     2,301        1,755        6,861         5,295
      Research and            1,049        0            1,049         0
      development
      General and             797          449          2,254         1,347
      administration
      Total amortization
      of intangible assets $  5,136     $  3,331     $  12,698     $  9,845
      expense
                                                                    

                                                                    
                           Three Months Ended        Nine Months Ended
                           November     November     November      November
                           30,          30,          30,           30,
                           2008         2007         2008          2007
                                                                    
   GAAP net income         $  24,305    $  20,283    $  62,733     $  54,661
                                                                    
   GAAP provision for         9,211        12,029       33,779        34,947
   income taxes
                                                                    

   GAAP income before
   provision for income    $  33,516    $  32,312    $  96,512     $  89,608
   taxes
                                                                    
   Add: Non-cash
   share-based                12,251       9,455        33,681        26,422
   compensation expense
   per FAS 123R
   Add: Amortization of       5,136        3,331        12,698        9,845
   intangible assets
                                                                    
   Non-GAAP adjusted
   income before provision $  50,903    $  45,098    $  142,891    $  125,875
   for income taxes
                                                                    

   Non-GAAP cash provision $  2,545     $  2,255     $  7,145      $  6,294
   for income taxes
                                                                    
   Non-GAAP adjusted net   $  48,358    $  42,843    $  135,746    $  119,581
   income
                                                                    
   Non-GAAP adjusted net   $  49,461    $  44,235    $  139,632    $  123,756
   income-diluted
                                                                    
   Non-GAAP adjusted net
   income per share:
      Basic                $  0.25      $  0.22      $  0.71       $  0.61
      Diluted              $  0.24      $  0.20      $  0.65       $  0.56
                                                                    
                                                                    
   Non-GAAP diluted net
   income per share
   computation:
   Non-GAAP adjusted net   $  48,358    $  42,843    $  135,746    $  119,581
   income
   Interest expense on
   convertible debentures,    507          677          1,861         2,031
   net of related 5% cash
   tax effects
   Amortization of debt
   issuance costs, net of     596          715          2,025         2,144
   related 5% cash tax
   effects
                                                                    

   Non-GAAP adjusted net   $  49,461    $  44,235    $  139,632    $  123,756
   income-diluted

   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      November      November      November
                        30,           30,           30,           30,
                        2008          2007          2008          2007
                                                                   
   GAAP Gross profit    $ 138,796     $ 114,455     $ 405,878     $ 322,270
                                                                   
   Add: Non-cash
   share-based            723           583           2,047         1,736
   compensation expense
   per FAS 123R
   Add: Amortization of   989           1,127         2,534         3,203
   intangible assets
                                                                   

   Non-GAAP gross       $ 140,508     $ 116,165     $ 410,459     $ 327,209
   profit
                                                                   
   Non-GAAP gross         85      %     86      %     84      %     86      %
   margin
                                                                   
                                                                   
                        Three Months Ended          Nine Months Ended
                        November      November      November      November
                        30, 2008      30, 2007      30, 2008      30, 2007
                                                                   
   GAAP operating       $ 117,826     $ 95,002      $ 343,594     $ 270,069
   expenses
                                                                   

   Deduct: Non-cash
   share-based            (11,528 )     (8,872  )     (31,634 )     (24,686 )
   compensation expense
   per FAS 123R
   Deduct: Amortization   (4,147  )     (2,204  )     (10,164 )     (6,642  )
   of intangible assets
                                                                   
   Non-GAAP adjusted    $ 102,151     $ 83,926      $ 301,796     $ 238,741  

   operating expenses
                                                                   
                                                                   
                        Three Months Ended          Nine Months Ended
                        November      November      November      November
                        30,           30,           30,           30,
                        2008          2007          2008          2007
                                                                   
   GAAP operating       $ 20,970      $ 19,453      $ 62,284      $ 52,201
   income
                                                                   
   Add: Non-cash
   share-based            12,251        9,455         33,681        26,422
   compensation expense
   per FAS 123R
   Add: Amortization of   5,136         3,331         12,698        9,845
   intangible assets
                                                                   

   Non-GAAP adjusted    $ 38,357      $ 32,239      $ 108,663     $ 88,468
   operating income
                                                                   
   Non-GAAP adjusted      23.2    %     23.8    %     22.3    %     23.2    %
   operating margin

   Contact:

   Red Hat
   Kara Schiltz, Corporate Communications
   919-301-3002
   kschiltz@redhat.com
   or
   Tom McCallum, Investor Relations
   919-754-4630
   investors@redhat.com