June 24, 2009

Red Hat Reports First Quarter Results

  • Revenue of $174 million, up 11% from prior year
  • GAAP EPS of $0.10, non-GAAP EPS of $0.15; both up 25% from prior year
  • Repurchased $47 million of common stock

RALEIGH, N.C., Jun 24, 2009 (BUSINESS WIRE) -- Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2010 first quarter ended May 31, 2009.

Total revenue for the quarter was $174.4 million, an increase of 11% from the year ago quarter. Subscription revenue for the quarter was $148.8 million, up 14% year-over-year.

"We are pleased to report better than expected revenue and EPS results in Q1," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Red Hat's growth is driven in part by our ability to help enterprise customers save money in a challenging IT spending environment. Our open source solutions drive new capabilities, efficiencies and functionality into the mission critical infrastructure of our customers."

GAAP operating income for the first quarter was $25.1 million, or a 14.4% operating margin. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the first quarter was $40.7 million, up 19% year-over-year. Non-GAAP operating margin was 23.4%, up 160 basis points from the year ago quarter.

Net income for the quarter was $18.5 million, or $0.10 per diluted share, compared with $17.3 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP net income for the quarter was $28.7 million, or $0.15 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $26.0 million, or $0.12 per diluted share, in the year ago quarter.

Operating cash flow totaled $61.2 million, as compared to $63.4 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $567.3 million, an increase of 15% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2009 were $884.5 million.

"While we remain focused on managing discretionary costs and improving efficiencies, we also continue to invest in growth opportunities in middleware, virtualization and cloud computing," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These efforts combined with solid top line growth contributed to non-GAAP operating income growth of 19% year-over-year and healthy cash flow. In the quarter, we repurchased $47 million of common stock while strengthening our balance sheet with a 5% sequential increase in cash and investments. On a year-over-year basis, we have reduced our diluted shares outstanding by approximately 11%."

Other highlights include the following:

  • We announced our JBoss Open Choice strategy, which is intended to address the evolving needs of application developers and the changing market by embracing a variety of programming models, frameworks and languages. Executing on this strategy, Red Hat now has application platform solutions for common Java application workloads; from simple web applications, to light and rich Java applications, to Java Enterprise Edition (EE) based applications. Our new JBoss platforms support a variety of popular programming models including Spring Framework, Seam and Google Web Toolkit.
  • Delivering on Red Hat's virtualization strategy and roadmap, the company announced the beta releases of Red Hat Enterprise Virtualization portfolio of products, all of which are integrated with our KVM hypervisor. Included in the beta release is a new management product for the management of server virtualization. The Red Hat Enterprise Virtualization portfolio will leverage Red Hat's broad certified ecosystem and will offer flexibility, operational choice and efficiency to customers.

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 and the ability to market successfully acquired technologies and products; 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; fluctuations in 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 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 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.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended
May 31,May 31,
20092008
Revenue:
Subscriptions $ 148,790 $ 130,694
Training and services 25,598 25,941
Total subscription, training and services revenue 174,388 156,635
Cost of revenue:
Subscriptions 10,050 8,957
Training and services 16,418 17,472
Total cost of subscription, training and services revenue 26,468 26,429
Total gross profit 147,920 130,206
Operating expense:
Sales and marketing 63,977 59,271
Research and development 35,102 28,911
General and administrative 23,785 22,114
Total operating expense 122,864 110,296
Income from operations 25,056 19,910
Other income, net 3,480 10,020
Interest expense (53 ) (1,586 )
Income before provision for income taxes 28,483 28,344
Provision for income taxes 9,969 11,054
Net income $ 18,514 $ 17,290
Net income-diluted $ 18,514 $ 18,184
Net income per share:
Basic $ 0.10 $ 0.09
Diluted $ 0.10 $ 0.08
Weighted average shares outstanding:
Basic 188,916 190,779
Diluted 194,382 218,853
Diluted net income per share computation:
Net income, basic $ 18,514 $ 17,290
Interest expense on convertible debentures, net of related GAAP tax effects

-

435
Amortization of debt issuance costs, net of related GAAP tax effects

-

459
Net income, diluted $ 18,514 $ 18,184
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
May 31,February 28,
20092009
(Unaudited)
Current assets:
Cash and cash equivalents $ 510,616 $ 515,548
Investments in debt and equity securities 206,891 147,178
Accounts receivable, net 106,639 128,669
Prepaid expenses and other current assets 95,387 99,437
Total current assets 919,533 890,832
Property and equipment, net 69,619 67,913
Goodwill 438,901 438,109
Identifiable intangibles, net 119,638 122,177
Investments in debt securities 167,028 183,363
Other assets, net 51,104 51,242
Total assets $ 1,765,823 $ 1,753,636
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,089 $ 9,576
Accrued expenses 52,104 54,123
Deferred revenue 402,764 382,050
Other current obligations 878 900
Total current liabilities 468,835 446,649
Deferred lease credits 4,319 4,470
Long term deferred revenue 164,576 161,032
Other long term obligations 34,573 35,432
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 1,295,305 1,281,469
Retained earnings 69,033 50,519
Treasury stock, at cost (283,054 ) (236,283 )
Accumulated other comprehensive income 12,215 10,327
Total stockholders' equity 1,093,520 1,106,053
Total liabilities and stockholders' equity $ 1,765,823 $ 1,753,636
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
May 31,May 31,
20092008
Cash flows from operating activities:
Net income $ 18,514 $ 17,290
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,810 9,097
Deferred income taxes 6,428 8,767
Excess tax benefits from share-based payment arrangements (14,200 ) (8,967 )
Share-based compensation expense 10,676 10,561
Other (124 ) 561
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable 26,278 19,320
Prepaid expenses and other current assets 644 (5,003 )
Accounts payable 2,997 (5,570 )
Accrued expenses (3,029 ) 1,986
Deferred revenue 2,361 15,454
Other assets, net (152 ) (134 )
Net cash provided by operating activities 61,203 63,362
Cash flows from investing activities:
Purchase of investment securities (157,034 ) (305,646 )
Proceeds from sales and maturities of investment securities 122,449 216,534
Acquisitions of businesses, net of cash acquired - (43,750 )
Proceeds from sales of investment in equity securities available-for-sale 221 -
Purchase of property and equipment (6,028 ) (9,522 )
Purchase of developed software and other intangible assets (989 ) (1,615 )
Net cash used in investing activities (41,381 ) (143,999 )
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 14,200 8,967
Proceeds from exercise of common stock options 4,400 11,447
Purchase of treasury stock (46,771 ) (8,347 )
Payments related to net settlement of employee share-based compensation awards (1,798 ) (800 )
Structured stock repurchase - 1,989
Proceeds from other borrowings - 66
Payments on other borrowings (900 ) (23 )
Net cash (used in) provided by financing activities (30,869 ) 13,299
Effect of foreign currency exchange rates on cash and cash equivalents 6,115 158
Net decrease in cash and cash equivalents (4,932 ) (67,180 )
Cash and cash equivalents at beginning of the period 515,548 677,720
Cash and cash equivalents at end of period $ 510,616 $ 610,540

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,
20092008
Cost of revenue $ 800 $ 681
Sales and marketing 3,110 3,996
Research and development 3,274 2,508
General and administration 3,492 3,376
Total share-based compensation expense $ 10,676 $ 10,561
Amortization of intangible assets expense included in Consolidated Statements of Operations:
Three Months Ended
May 31,May 31,
20092008
Cost of revenue $ 961 $ 735
Sales and marketing 2,322 2,255
Research and development 925

-

General and administration 797 703
Total amortization of intangible assets expense $ 5,005 $ 3,694
Three Months Ended
May 31,May 31,
20092008
GAAP net income $ 18,514 $ 17,290
Provision for income taxes 9,969 11,054
GAAP income before provision for income taxes $ 28,483 $ 28,344
Add: Non-cash share-based compensation expense per FAS 123R 10,676 10,561
Add: Amortization of intangible assets 5,005 3,694
Non-GAAP adjusted income before provision for income taxes $ 44,164 $ 42,599
Provision for income taxes $ 15,457 $ 16,614
Non-GAAP adjusted net income $ 28,707 $ 25,985
Non-GAAP adjusted net income-diluted $ 28,707 $ 26,879
Non-GAAP adjusted net income per share:
Basic $ 0.15 $ 0.14
Diluted $ 0.15 $ 0.12
Non-GAAP diluted net income per share computation:
Non-GAAP adjusted net income $ 28,707 $ 25,985
Interest expense on convertible debentures, net of related GAAP tax effects

-

435
Amortization of debt issuance costs, net of related GAAP tax effects

-

459
Non-GAAP adjusted net income-diluted $ 28,707 $ 26,879
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,
20092008

GAAP gross profit

$ 147,920 $ 130,206
Add: Non-cash share-based compensation expense per FAS 123R 800 681
Add: Amortization of intangible assets 961 735
Non-GAAP gross profit $ 149,681 $ 131,622
Non-GAAP gross margin 86 % 84 %
Three Months Ended
May 31,May 31,
20092008
GAAP operating expenses $ 122,864 $ 110,296
Deduct: Non-cash share-based compensation expense per FAS 123R (9,876 ) (9,880 )
Deduct: Amortization of intangible assets (4,044 ) (2,959 )
Non-GAAP adjusted operating expenses $ 108,944 $ 97,457
Three Months Ended
May 31,May 31,
20092008
GAAP operating income $ 25,056 $ 19,910
Add: Non-cash share-based compensation expense per FAS 123R 10,676 10,561
Add: Amortization of intangible assets 5,005 3,694
Non-GAAP adjusted operating income $ 40,737 $ 34,165
Non-GAAP adjusted operating margin 23.4 % 21.8 %

SOURCE: Red Hat, Inc.

Red Hat Inc.
Media Contact:
Kara Schiltz, 919-301-3002
kschiltz@redhat.com
or
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