Red Hat, Inc.
Jun 22, 2011

Red Hat Reports First Quarter 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 year 2012 first quarter ended May 31, 2011.

Total revenue for the quarter was $264.7 million, an increase of 27% from the year ago quarter. Subscription revenue for the quarter was $225.5 million, up 26% year-over-year.

"Red Hat has begun fiscal year 2012 with a strong first quarter including year-over-year billings growth of 28% that contributed to revenue and profitability that exceeded the high-end of our expectations," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We believe there is a fundamental shift in IT spending, in which cloud computing and virtualization have become key strategic priorities. We believe that Red Hat is well positioned to capitalize on this growing demand as enterprise customers look to Red Hat when upgrading and modernizing their IT infrastructure."

GAAP operating income for the first quarter was $45.4 million, or a 17.1% 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 $66.5 million, up 28% year-over-year. Non-GAAP operating margin was 25.1%, up 30 basis points from the year ago quarter.

Net income for the quarter was $32.5 million, or $0.17 per diluted share, compared with $24.1 million, or $0.12 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP net income for the quarter was $47.0 million, or $0.24 per diluted share, as compared to $35.6 million, or $0.18 per diluted share, in the year ago quarter.

Operating cash flow was $90.2 million for the first quarter, as compared to $60.6 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $786.0 million, an increase of 26% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2011 was $1.27 billion.

"Strong sales execution, focused spending and good collections drove 49% growth in operating cash flow year-over-year," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Red Hat grew first quarter non-GAAP operating income by 28% year-over-year even as we ramped up marketing spending for the Red Hat Summit and product launches, and continued investments in R&D to enable further broadening of our product portfolio. We introduced innovative new cloud technologies such as OpenShift, our PaaS offering, and CloudForms, our IaaS offering. In addition, we enhanced our core products, including the release of Red Hat Enterprise Linux 6.1 and strengthened our partnerships with the launch of Open Virtualization Alliance."

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 70 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 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 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
May 31, May 31,
2011 2010
Revenue:
 
Subscriptions $225,533 $179,076
Training and services 39,213 30,068
 
 
Total subscription, training and services revenue 264,746 209,144
 
Cost of revenue:
 
Subscriptions 15,239 12,664
Training and services 27,208 20,574
 
 
Total cost of subscription, training and services revenue 42,447 33,238
 
 
Total gross profit 222,299 175,906
 
Operating expense:
Sales and marketing 97,325 74,564
Research and development 48,288 40,658
General and administrative 31,327 26,445
 
Total operating expense 176,940 141,667
 
Income from operations 45,359 34,239
Interest income 1,936 1,663
Other income (expense), net (266) 1,130
 
 
Income before provision for income taxes 47,029 37,032
Provision for income taxes 14,579 12,961
 
Net income $32,450 $24,071
 
Net income-diluted $32,450 $24,071
 
Net income per share:
Basic $0.17 $0.13
Diluted $0.17 $0.12
 
Weighted average shares outstanding:
Basic 193,155 187,926
Diluted 196,287 193,266

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
 
ASSETS
May 31, February 28,
2011 2011
(Unaudited)
Current assets:
Cash and cash equivalents $710,223 $642,630
Investments in debt and equity securities 200,258 217,970
Accounts receivable, net 154,939 184,741
Deferred tax assets, net 75,192 75,720
Prepaid expenses 66,607 62,364
Other current assets 1,016 1,133
 
Total current assets 1,208,235 1,184,558
 
Property and equipment, net 77,754 75,558
Goodwill 465,563 463,673
Identifiable intangibles, net 106,461 109,932
Investments in debt securities 356,260 331,791
Other assets, net 33,568 33,810
 
Total assets $2,247,841 $2,199,322
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,357 $16,285
Accrued expenses 85,052 90,229
Deferred revenue 584,348 572,637
Other current obligations 340 650
 
Total current liabilities 686,097 679,801
 
Deferred lease credits 5,113 5,215
Long term deferred revenue 201,693 199,617
Other long term obligations 24,435 23,990
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 1,633,083 1,610,238
Retained earnings 277,500 245,050
Treasury stock, at cost (581,738) (562,792)
Accumulated other comprehensive (loss) income 1,636 (1,819)
 
Total stockholders' equity 1,330,503 1,290,699
 
Total liabilities and stockholders' equity $2,247,841 $2,199,322

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
   
 
Three Months Ended
May 31, May 31,
2011 2010
 
Cash flows from operating activities:
Net income $32,450 $24,071
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization 12,739 11,722
Share-based compensation expense 16,187 13,174
Deferred income taxes 11,055 8,352
Excess tax benefits from share-based payment arrangements (8,560) (11,007)
Gain on sale of available-for-sale equity securities (644) (516)
Other 567 (203)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable 32,042 19,525
Prepaid expenses (3,293) (591)
Accounts payable (90) (5,069)
Accrued expenses (3,849) 1,540
Deferred revenue 1,270 (1,058)
Other 338 704
 
Net cash provided by operating activities 90,212 60,644
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (180,850) (110,343)
Proceeds from sales and maturities of available-for-sale debt securities 172,583 198,318
Proceeds from sales of available-for-sale equity securities 665 548
Purchase of developed technologies and other intangible assets (2,543) (1,621)
Purchase of property and equipment (8,657) (6,722)
 
Net cash provided by (used in) investing activities (18,802) 80,180
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 8,560 11,007
Proceeds from exercise of common stock options 5,043 37,688
Purchase of treasury stock (18,946) (74,362)
Payments related to net settlement of employee share-based compensation awards (9,033) (7,055)
Payments on other borrowings (594) (877)
 
Net cash used in financing activities (14,970) (33,599)
 
Effect of foreign currency exchange rates on cash and cash equivalents 11,153 (16,973)
Net increase in cash and cash equivalents 67,593 90,252
Cash and cash equivalents at beginning of the period 642,630 388,118
 
Cash and cash equivalents at end of period $710,223 $478,370

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,
2011 2010
 
Cost of revenue $1,790 $1,191
Sales and marketing 5,571 3,776
Research and development 4,193 3,355
General and administration 4,633 4,852
Total share-based compensation expense $16,187 $13,174
 
 
Amortization of intangible assets expense included in Consolidated Statements of Operations:
 
Three Months Ended
May 31, May 31,
2011 2010
 
Cost of revenue $979 $704
Sales and marketing 1,959 2,086
Research and development 1,157 925
General and administration 846 822
Total amortization of intangible assets expense $4,941 $4,537
 
 
Three Months Ended
May 31, May 31,
2011 2010
 
GAAP net income $32,450 $24,071
 
Provision for income taxes 14,579 12,961
 
GAAP income before provision for income taxes $47,029 $37,032
 
Add: Non-cash share-based compensation expense 16,187 13,174
Add: Amortization of intangible assets 4,941 4,537
 
Non-GAAP adjusted income before provision for income taxes $68,157 $54,743
 
Provision for income taxes 21,129 19,160
 
Non-GAAP adjusted net income $47,028 $35,583
 
Non-GAAP adjusted net income-diluted $47,028 $35,583
 
Non-GAAP adjusted net income per share:
Basic $0.24 $0.19
Diluted $0.24 $0.18

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,
2011 2010
 
GAAP gross profit $222,299 $175,906
 
Add: Non-cash share-based compensation expense 1,790 1,191
Add: Amortization of intangible assets 979 704
 
Non-GAAP gross profit $225,068 $177,801
 
Non-GAAP gross margin 85.0% 85.0%
 
 
Three Months Ended
May 31, May 31,
2011 2010
 
GAAP operating expenses $176,940 $141,667
 
Deduct: Non-cash share-based compensation expense (14,397) (11,983)
Deduct: Amortization of intangible assets (3,962) (3,833)
 
Non-GAAP adjusted operating expenses $158,581 $125,851
 
 
Three Months Ended
May 31, May 31,
2011 2010
 
GAAP operating income $45,359 $34,239
 
Add: Non-cash share-based compensation expense 16,187 13,174
Add: Amortization of intangible assets 4,941 4,537
 
Non-GAAP adjusted operating income $66,487 $51,950
 
Non-GAAP adjusted operating margin 25.1% 24.8%

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.

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