Red Hat, Inc.
Mar 25, 2009

Red Hat Reports Fiscal Fourth Quarter and Fiscal Year 2009 Results

RALEIGH, N.C., Mar 25, 2009 (BUSINESS WIRE) -- Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2009.

Total revenue for the quarter was $166.2 million, an increase of 18% from the year ago quarter and 1% from the prior quarter. Subscription revenue for the quarter was $139.4 million, up 14% year-over-year and 3% from the prior quarter. For the full year, total revenue was $652.6 million, an increase of 25% over the prior year, and subscription revenue was $541.2 million, up 20% year-over-year.

GAAP operating income for the fourth quarter and the full fiscal year 2009 was $20.2 million and $82.5 million, respectively. After adjusting for stock compensation and amortization expenses, non-GAAP operating income for the fourth quarter was $39.8 million, or a 23.9% operating margin, up 70 basis points from the prior quarter and 180 basis points from the year ago quarter. Full year non-GAAP operating income was $148.4 million, an increase of 24% from the prior year.

GAAP net income for the quarter was $16.0 million, or $0.08 per diluted share, compared with $24.3 million, or $0.12 per diluted share, for the prior quarter and $22.0 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $42.3 million, or $0.22 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 $48.4 million, or $0.24 per diluted share in the prior quarter and $45.7 million, or $0.21 per diluted share in the year ago quarter. Both the prior quarter and the year ago fourth quarter included one-time gains in other income of $4.1 million and $4.7 million respectively that are not included in the fiscal 2009 fourth quarter.

For the full year, GAAP net income was $78.7 million or $0.39 per diluted share, compared with $76.7 million or $0.36 per diluted share in the prior year. Non-GAAP adjusted net income for the year was $178.1 million or $0.86 per diluted share, compared to $165.3 million and $0.77 per diluted share for the fiscal year ended February 29, 2008.

Operating cash flow totaled $59.7 million for the quarter and $236.4 million for the full year. At year end, the company's total deferred revenue balance was $543.1 million, an increase of 15% on a year-over-year basis and 8% sequentially. Total cash, cash equivalents and investments as of February 28, 2009 were $846.1 million after redeeming the remaining balance of $285.5 million of convertible debentures during the quarter.

"Our ability to demonstrate real value and deliver cost savings to our customers enabled us to achieve significant new milestones during the quarter, including billings in excess of $200 million and more than 100 deals in excess of $250,000. Our value proposition is even more compelling in a challenging economic environment, and we believe that's a key driver to our solid financial results and market share gains," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "For the full fiscal year, we achieved an impressive combination of 25% revenue growth, 24% non-GAAP operating income growth and operating cash flow of $236 million, while renewing 100% of our top 25 customers up for renewal each quarter."

"Solid execution by our associates and focused expense management on a continuing basis has enabled us to exceed our guidance for non-GAAP operating margins and EPS for the fourth quarter," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We continue to enhance the company's already strong financial profile. We ended the fiscal year with cash and cash equivalents and investments of $846 million and essentially no debt. During fiscal year 2009, we redeemed $570 million in convertible debt and repurchased 2.9 million shares of the company's common stock, which reduced our diluted share count by more than 10%. In summary, it was a strong year in a very difficult economic climate."

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.

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 as one of the top vendors delivering value in Enterprise Software for five 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 delays or reductions in information technology spending; 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; 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; fluctuating exchange rates; 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 EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
Revenue:
Subscriptions $139,356 $121,862 $541,210 $449,811
Training and services 26,865 19,631 111,362 73,205
Total subscription, training and services revenue 166,221 141,493 652,572 523,016
Cost of revenue:
Subscriptions 9,819 9,389 37,267 33,581
Training and services 15,834 12,011 68,859 47,072
Total cost of subscription, training and services revenue 25,653 21,400 106,126 80,653
Total gross profit 140,568 120,093 546,446 442,363
Operating expense:
Sales and marketing 61,202 52,093 238,552 192,049
Research and development 34,993 26,316 130,177 97,417
General and administrative 24,136 23,512 95,196 82,525
Total operating expense 120,331 101,921 463,925 371,991
Income from operations 20,237 18,172 82,521 70,372
Other income, net 5,216 18,371 43,809 60,420
Interest expense (433) (1,611) (4,798) (6,252)
Income before provision for income taxes 25,020 34,932 121,532 124,540
Provision for income taxes 9,032 12,926 42,811 47,873
Net income $15,988 $22,006 $78,721 $76,667
Net income-diluted $16,210 $22,929 $81,597 $80,274
Net income per share:
Basic $0.08 $0.11 $0.41 $0.40
Diluted $0.08 $0.10 $0.39 $0.36
Weighted average shares outstanding:
Basic 190,146 193,189 190,772 193,485
Diluted 197,820 220,356 211,344 221,313
Diluted net income per share computation:
Net income, basic $15,988 $22,006 $78,721 $76,667
Interest expense on convertible debentures, net of related GAAP tax effects 142 449 1,413 1,754
Amortization of debt issuance costs, net of related GAAP tax effects 80 474 1,463 1,853
Net income, diluted $16,210 $22,929 $81,597 $80,274
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
February 28,February 29,
2009 2008
(Unaudited)
Current assets:
Cash and cash equivalents $515,548 $677,720
Investments in debt and equity securities 147,178 312,442
Accounts receivable, net 128,669 127,002
Prepaid expenses and other current assets 99,437 75,192
Total current assets 890,832 1,192,356
Property and equipment, net 67,913 68,557
Goodwill 438,109 340,314
Identifiable intangibles, net 122,177 93,823
Investments in debt securities 183,363 341,781
Other assets, net 51,242 43,151
Total assets $1,753,636 $2,079,982
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,576 $17,341
Accrued expenses 54,123 43,260
Deferred revenue 382,050 339,088
Convertible debentures - 570,000
Other current obligations 900 59
Total current liabilities 446,649 969,748
Deferred lease credits 4,470 4,977
Long term deferred revenue 161,032 133,805
Other long term obligations 35,432 20,261
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 1,281,469 1,170,328
Retained earnings (accumulated deficit) 50,519 (28,202)
Treasury stock, at cost (236,283) (192,946)
Accumulated other comprehensive income 10,327 1,990
Total stockholders' equity 1,106,053 951,191
Total liabilities and stockholders' equity $1,753,636 $2,079,982
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
Cash flows from operating activities:
Net income $15,988 $22,006 $78,721 $76,667
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,824 9,105 40,309 33,002
Deferred income taxes 11,719 12,654 38,979 41,211
Excess tax benefits from share-based payment arrangements (11,891) (17,041) (51,137) (61,247)
Share-based compensation expense 14,633 10,035 48,315 36,457
(Gain) loss on investments 1,148 (4,799) (3,848) (4,799)
Gain on repurchase of convertible debentures - - (4,129) -
Amortization of debt issuance costs 188 752 2,319 3,010
Other 917 72 1,094 1,092
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (16,029) (16,999) (2,341) (33,741)
Prepaid expenses and other current assets (4,660) (6,088) (18,968) (7,761)
Accounts payable (1,138) 6,671 (7,275) 4,713
Accrued expenses (1,520) (5,678) 17,056 1,600
Deferred revenue 39,644 43,957 97,861 113,138
Other assets (159) (134) (517) (266)
Net cash provided by operating activities 59,664 54,513 236,439 203,076
Cash flows from investing activities:
Purchase of investment securities (65,105) (309,853) (396,810) (1,173,012)
Proceeds from sales and maturities of investment securities 286,701 402,551 714,015 1,155,854
Acquisitions of businesses, net of cash acquired - - (148,140) (11,784)
Proceeds from sale of strategic equity investments - 6,199 5,568 6,199
Purchase of property and equipment (6,321) (16,045) (24,485) (41,797)
Purchase of developed software and other intangible assets (811) (840) (3,932) (5,616)
Net cash (used in) provided by investing activities 214,464 82,012 146,216 (70,156)
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 11,891 17,041 51,137 61,247
Net proceeds related to employee exercise of options 1,117 1,592 18,355 15,512
Repurchase of convertible debentures (285,500) - (565,558) -
Purchase of treasury stock (3,973) (66,539) (42,319) (67,157)
Payments related to net settlement of employee share awards (457)

-

(2,698)

-

Structured stock repurchase -

-

1,989 -
Proceeds from other borrowings - - - 2,898
Payments on other borrowings - - (69) (756)
Net cash (used in) provided by financing activities (276,922) (47,906) (539,163) 11,744
Effect of foreign currency exchange rates on cash and cash equivalents (1,495) 2,142 (5,664) 5,817
Net increase (decrease) in cash and cash equivalents (4,289) 90,761 (162,172) 150,481
Cash and cash equivalents at beginning of the period 519,837 586,959 677,720 527,239
Cash and cash equivalents at end of period $515,548 $677,720 $515,548 $677,720
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 EndedTwelve Months Ended
February 28, February 29,February 28,February 29,
2009200820092008
Cost of revenue $1,004 $657 $3,065 $2,393
Sales and marketing 4,239 2,606 13,826 10,193
Research and development 4,251 2,265 14,027 8,717
General and administration 5,139 4,507 17,397 15,154
Total share-based compensation expense $14,633 $10,035 $48,315 $36,457
Amortization of intangible assets expense included in Consolidated Statements of Operations:
Three Months EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
Cost of revenue $969 $909 $3,503 $4,110
Sales and marketing 2,187 1,763 9,048 7,058
Research and development 953 0 2,003 2
General and administration 797 456 3,053 1,803
Total amortization of intangible assets expense $4,906 $3,128 $17,607 $12,973
Three Months EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
GAAP net income $15,988 $22,006 $78,721 $76,667
GAAP provision for income taxes 9,032 12,926 42,811 47,873
GAAP income before provision for income taxes $25,020 $34,932 $121,532 $124,540
Add: Non-cash share-based compensation expense per FAS 123R 14,633 10,035 48,315 36,457
Add: Amortization of intangible assets 4,906 3,128 17,607 12,973
Non-GAAP adjusted income before provision for income taxes $44,559 $48,095 $187,454 $173,970
Non-GAAP cash provision for income taxes $2,228 $2,405 $9,373 $8,698
Non-GAAP adjusted net income $42,331 $45,690 $178,081 $165,272
Non-GAAP adjusted net income-diluted $42,661 $47,082 $182,298 $170,839
Non-GAAP adjusted net income per share:
Basic $0.22 $0.24 $0.93 $0.85
Diluted $0.22 $0.21 $0.86 $0.77
Non-GAAP diluted net income per share computation:
Non-GAAP adjusted net income $42,331 $45,690 $178,081 $165,272
Interest expense on convertible debentures, net of related 5% cash tax effects 211 677 2,072 2,708
Amortization of debt issuance costs, net of related 5% cash tax effects 119 715 2,145 2,859
Non-GAAP adjusted net income-diluted $42,661 $47,082 $182,298 $170,839
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 EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
GAAP Gross profit $140,568 $120,093 $546,446 $442,363
Add: Non-cash share-based compensation expense per FAS 123R 1,004 657 3,065 2,393
Add: Amortization of intangible assets 969 909 3,503 4,110
Non-GAAP gross profit $142,541 $121,659 $553,014 $448,866
Non-GAAP gross margin 86% 86% 85% 86%
Three Months EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
GAAP operating expenses $120,331 $101,921 $463,925 $371,991
Deduct: Non-cash share-based compensation expense per FAS 123R (13,629) (9,378) (45,250) (34,064)
Deduct: Amortization of intangible assets (3,937) (2,219) (14,104) (8,863)
Non-GAAP adjusted operating expenses $102,765 $90,324 $404,571 $329,064
Three Months EndedTwelve Months Ended
February 28,February 29,February 28,February 29,
2009200820092008
GAAP operating income $20,237 $18,172 $82,521 $70,372
Add: Non-cash share-based compensation expense per FAS 123R 14,633 10,035 48,315 36,457
Add: Amortization of intangible assets 4,906 3,128 17,607 12,973
Non-GAAP adjusted operating income $39,776 $31,335 $148,443 $119,802
Non-GAAP adjusted operating margin 23.9% 22.1% 22.7% 22.9%

SOURCE: Red Hat, Inc.

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

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