Red Hat, Inc.
Mar 23, 2011

Red Hat Reports Fourth Quarter and Fiscal Year 2011 Results

RALEIGH, N.C.--(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, 2011.

Total revenue for the quarter was $244.8 million, an increase of 25% from the year ago quarter. Subscription revenue for the quarter was $209.3 million, up 24% year-over-year. For the full year, total revenue was $909.3 million, an increase of 22% over the prior year, and subscription revenue was $773.4 million, up 21% year-over-year.

"With record bookings and billings in the fourth quarter, we are on a run rate to become the first pure-play open source company to achieve a billion dollars in revenues next fiscal year, a milestone achievement for Red Hat and the open source community," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We believe the strong demand we experienced was largely driven by customers who are modernizing their data centers and preparing their infrastructure for cloud computing. The comprehensive portfolio that Red Hat has developed with platform, virtualization and middleware products provides enterprise customers with a foundation to deploy the next generation infrastructure."

GAAP operating income for the fourth quarter and the full fiscal year 2011 was $39.4 million and $145.7 million, respectively. GAAP operating margin was 16.1% in the fourth quarter and 16.0% for the full year. After adjusting for stock compensation, amortization expenses, and in the prior year, the charge for a litigation settlement as detailed in the tables below, non-GAAP operating income for the quarter was $61.0 million, or a 24.9% operating margin, and full year non-GAAP operating income was $225.2 million. Full year non-GAAP operating margin was 24.8%, representing an increase of 110 basis points from the prior year.

GAAP net income for the fourth quarter was $33.5 million, or $0.17 per diluted share, compared with $26.0 million, or $0.13 per diluted share, for the prior quarter and $23.4 million, or $0.12 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the fourth quarter was $51.4 million, or $0.26 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below. This compares to non-GAAP adjusted net income of $39.1 million, or $0.20 per diluted share in the prior quarter and $36.5 million, or $0.19 per diluted share in the year ago quarter.

For the full year, GAAP net income was $107.3 million or $0.55 per diluted share, compared with $87.3 million or $0.45 per diluted share in the prior year. After adjusting for stock compensation, amortization expenses, and in the prior year, the charge for a litigation settlement, as detailed in the tables below, non-GAAP adjusted net income for the year was $162.8 million or $0.83 per diluted share, compared to $138.1 million and $0.71 per diluted share for the fiscal year ended February 28, 2010.

Fourth quarter GAAP and non-GAAP net income benefited by approximately $0.02/share as a result of the retroactive reenactment in December 2010, of the research tax credit into US tax law. This, together with other tax benefits, including additional US foreign tax credits, reduced the fourth quarter fiscal 2011 effective tax rate for both GAAP and non-GAAP to 17%. The resulting full year effective tax rate for both GAAP and non-GAAP for fiscal 2011 is 30%.

GAAP operating cash flow totaled $95.0 million for the fourth quarter and $290.7 million for the full year. At year end, the company's total deferred revenue balance was $772.3 million, an increase of 20% on a year-over-year basis and 13% sequentially. Cash and investments at February 28, 2011 totaled $1.2 billion after repurchasing approximately $11 million, or approximately 250,000 shares, of common stock in the quarter. For the full fiscal year, Red Hat repurchased approximately $90 million, or 2.9 million shares, of common stock.

"Our fourth quarter results were strong and capped off a year of accelerated billings growth. Broad- based, global demand for our products and services, coupled with strong execution by our associates, resulted in over 30% year-over-year growth in billings this quarter; our fastest billings growth in 12 quarters," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "This year we focused on growth with aggressive hiring for sales and engineering, launched major product releases and invested in technologies focused on cloud computing. These investments produced greater than 20% growth in revenues and non-GAAP operating income for both the quarter and the year. At the same time, we increased non-GAAP operating margins by 110 basis points and improved cash flow. It was a good year."

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 provider of open source solutions and an S&P 500 company, 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 seven 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 virtualization, applications, management and Services Oriented Architecture (SOA) solutions, including Red Hat Enterprise Virtualization and 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 effects of industry consolidation, uncertainty and adverse results in litigation and related settlements, 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; 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 and political conditions, governmental and public policy changes and the impact of natural disasters such as the earthquakes and related events in Japan. 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. and JBoss are registered trademarks of 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     Twelve Months Ended
February 28,     February 28, February 28,     February 28,
2011     2010 2011     2010
Revenue:
 
Subscriptions $209,303 $169,158 $773,404 $638,654
Training and services 35,493 26,710 135,873 109,582
 
 
Total subscription, training and services revenue 244,796 195,868 909,277 748,236
 
Cost of revenue:
 
Subscriptions 14,742 11,393 52,997 43,426
Training and services 26,862 17,945 97,290 70,419
 
Total cost of subscription, training and services revenue 41,604 29,338 150,287 113,845
 
Total gross profit 203,192 166,530 758,990 634,391
 
Operating expense:
Sales and marketing 88,273 70,462 327,408 272,705
Research and development 45,150 38,293 171,253 148,360
General and administrative 30,359 29,816 114,653 104,227
Litigation Settlement - - - 8,750
 
Total operating expense 163,782 138,571 613,314 534,042
 
Income from operations 39,410 27,959 145,676 100,349
Interest income 1,697 2,220 6,743 10,381
Other income (expense), net (866) 4,329 1,275 10,772
 
 
Income before provision for income taxes 40,241 34,508 153,694 121,502
Provision for income taxes 6,707 11,120 46,416 34,249
 
Net income $33,534 $23,388 $107,278 $87,253
 
Net income-diluted $33,534 $23,388 $107,278 $87,253
 
Net income per share:
Basic $0.17 $0.12 $0.56 $0.46
Diluted $0.17 $0.12 $0.55 $0.45
 
Weighted average shares outstanding:
Basic 192,996 187,911 190,294 187,845
Diluted 197,878 193,822 196,353 193,546

 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
 
ASSETS
    February 28,     February 28,
2011 2010 (1)
(Unaudited)
Current assets:
Cash and cash equivalents $642,630 $388,118
Investments in debt and equity securities 217,970 372,656
Accounts receivable, net 184,741 139,436
Deferred tax assets, net 75,720 57,951
Prepaid expenses 62,364 44,116
Other current assets 1,133 842
 
Total current assets 1,184,558 1,003,119
 
Property and equipment, net 75,558 71,708
Goodwill 463,673 438,749
Identifiable intangibles, net 109,932 108,213
Investments in debt securities 331,791 209,411
Other assets, net 33,810 39,672
 
Total assets $2,199,322 $1,870,872
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,285 $16,483
Accrued expenses 90,229 68,334
Deferred revenue 572,637 480,572
Other current obligations 650 878
 

Total current liabilities

679,801 566,267
 
Deferred lease credits 5,215 4,184
Long term deferred revenue 199,617 165,288
Other long term obligations 23,990 24,081
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 1,610,238 1,444,848
Retained earnings 245,050 137,772
Treasury stock, at cost (562,792) (472,646)
Accumulated other comprehensive (loss) income (1,819) 1,056
 
Total stockholders' equity 1,290,699 1,111,052
 
Total liabilities and stockholders' equity $2,199,322 $1,870,872
 
(1) Derived from audited financial statements

 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
    Three Months Ended     Twelve Months Ended
February 28,     February 28, February 28,     February 28,
2011     2010 2011     2010
 
Cash flows from operating activities:
Net income $33,534 $23,388 $107,278 $87,253

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 12,757 12,014 47,997 45,861
Share-based compensation expense 16,408 14,042 60,597 48,288
Deferred income taxes 4,151 5,570 33,848 20,636
Excess tax benefits from share-based payment arrangements (10,292) (8,289) (42,291) (35,569)
Gain on sale of available-for-sale equity securities (903) (4,409) (3,746) (12,656)
Other 716 1,453 1,505 1,248
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (30,481) (6,159) (41,512) (7,290)
Prepaid expenses (7,863) (5,810) (17,220) (630)
Accounts payable (3,043) (375) (381) 6,569
Accrued expenses 5,320 (1,414) 29,915 15,423
Deferred revenue 73,540 46,662 112,724 82,625
Other 1,157 1,220 2,034 3,491
 
Net cash provided by operating activities 95,001 77,893 290,748 255,249
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (216,327) (132,630) (751,420) (666,890)
Proceeds from sales and maturities of available-for-sale debt securities 165,472 113,321 770,860 412,514
Proceeds from sales of available-for-sale equity securities 939 4,681 3,938 13,053
Acquisitions of businesses, net of cash acquired - - (31,381) -
Net purchase of strategic equity investments - (400) - (1,768)
Purchase of developed technologies and other intangible assets (1,667) (1,775) (14,093) (4,692)
Purchase of property and equipment (7,588) (7,103) (32,759) (28,420)
 
Net cash used in investing activities (59,171) (23,906) (54,855) (276,203)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 10,292 8,289 42,291 35,569
Proceeds from exercise of common stock options 4,090 39,758 84,443 103,332
Purchase of treasury stock (10,791) (90,147) (90,146) (236,393)
Payments related to net settlement of employee share-based compensation awards (3,162) (2,801) (26,250) (11,855)
Payments on other borrowings (16) - (876) (900)
Proceeds from other borrowings - - 318 -
 
Net cash provided by (used in) financing activities 413 (44,901) 9,780 (110,247)
 
Effect of foreign currency exchange rates on cash and cash equivalents 11,473 (10,677) 8,839 3,771
Net increase (decrease) in cash and cash equivalents 47,716 (1,591) 254,512 (127,430)
Cash and cash equivalents at beginning of the period 594,914 389,709 388,118 515,548
 
Cash and cash equivalents at end of period $642,630 $388,118 $642,630 $388,118

 
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     Twelve Months Ended
February 28,     February 28, February 28,     February 28,
2011 2010 2011 2010
 
Cost of revenue $1,884 $1,155 $6,053 $3,630
Sales and marketing 5,502 4,166 18,971 14,041
Research and development 4,244 4,026 15,639 13,614
General and administration 4,778 4,695 19,934 17,003
Total share-based compensation expense $16,408 $14,042 $60,597 $48,288
 
 
Amortization of intangible assets expense included in Consolidated Statements of Operations:
 
Three Months Ended Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
Cost of revenue $979 $724 $3,274 $3,662
Sales and marketing 2,085 2,148 8,322 9,056
Research and development 1,250 925 4,025 3,702
General and administration 846 816 3,340 3,228
Total amortization of intangible assets expense $5,160 $4,613 $18,961 $19,648
 
 
Class action litigation settlement expense included in Consolidated Statements of Operations:
 
Three Months Ended Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
Litigation settlement - - - $8,750
 
 
Three Months Ended Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
GAAP net income $33,534 $23,388 $107,278 $87,253
 
Provision for income taxes 6,707 11,120 46,416 34,249
 
GAAP income before provision for income taxes $40,241 $34,508 $153,694 $121,502
 
Add: Non-cash share-based compensation expense 16,408 14,042 60,597 48,288
Add: Amortization of intangible assets 5,160 4,613 18,961 19,648
Add: Litigation settlement - - - 8,750
 
Non-GAAP adjusted income before provision for income taxes $61,809 $53,163 $233,252 $198,188
 
Provision for income taxes (1) 10,437 16,624 70,442 60,065
 
Non-GAAP adjusted net income $51,372 $36,539 $162,810 $138,123
 
Non-GAAP adjusted net income-diluted $51,372 $36,539 $162,810 $138,123
 
Non-GAAP adjusted net income per share:
Basic $0.27 $0.19 $0.86 $0.74
Diluted $0.26 $0.19 $0.83 $0.71
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $61,809 $53,163 $233,252 $198,188
Estimated annual effective tax rate 16.9% 31.3% 30.2% 34.0%
Non-GAAP provision for income taxes before discrete tax benefit $10,437 $16,624 $70,442 $67,384
Discrete tax benefit - - - 7,319
Provision for income taxes on Non-GAAP adjusted net income $10,437 $16,624 $70,442 $60,065

 
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 Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
GAAP gross profit $203,192 $166,530 $758,990 $634,391
 
Add: Non-cash share-based compensation expense 1,884 1,155 6,053 3,630
Add: Amortization of intangible assets 979 724 3,274 3,662
 
Non-GAAP gross profit $206,055 $168,409 $768,317 $641,683
 
Non-GAAP gross margin 84.2% 86.0% 84.5% 85.8%
 
 
Three Months Ended Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
GAAP operating expenses $163,782 $138,571 $613,314 $534,042
 
Deduct: Non-cash share-based compensation expense (14,524) (12,887) (54,544) (44,658)
Deduct: Amortization of intangible assets (4,181) (3,889) (15,687) (15,986)
Deduct: Litigation settlement - - - (8,750)
 
Non-GAAP adjusted operating expenses $145,077 $121,795 $543,083 $464,648
 
 
Three Months Ended Twelve Months Ended
February 28, February 28, February 28, February 28,
2011 2010 2011 2010
 
GAAP operating income $39,410 $27,959 $145,676 $100,349
 
Add: Non-cash share-based compensation expense 16,408 14,042 60,597 48,288
Add: Amortization of intangible assets 5,160 4,613 18,961 19,648
Add: Litigation settlement - - - 8,750
 
Non-GAAP adjusted operating income $60,978 $46,614 $225,234 $177,035
 
Non-GAAP adjusted operating margin 24.9% 23.8% 24.8% 23.7%

Red Hat, Inc.
Media Contact:
Kara Schiltz, 919-301-3002
kschiltz@redhat.com
or
Investor Relations:
Tom McCallum, 919-754-4630
tmccallum@redhat.com

Source: Red Hat, Inc.

News Provided by Acquire Media