December 19, 2011

Red Hat Reports Third Quarter Results

  • Third quarter revenue of $290 million, up 23% year-over-year
  • Third quarter GAAP operating income of $54 million, up 41% year-over-year; non-GAAP operating income of $79 million, up 36% year-over-year
  • Third quarter GAAP EPS of $0.19, up 46% year-over-year; non-GAAP EPS of $0.28, up 40% year-over-year
  • Third quarter operating cash flow of $97 million, up 36% year-over-year

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 third quarter ended November 30, 2011.

Total revenue for the quarter was $290.0 million, an increase of 23% from the year ago quarter. Subscription revenue for the quarter was $246.5 million, up 24% year-over-year.

"Red Hat continues to benefit from enterprise customers that are seeking to leverage their IT infrastructure to drive significant productivity gains and agility across their organizations. The combination of strong sales execution, market demand and market share gains contributed to organic billings and revenue growth of 23% for the quarter," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We also recently completed the acquisition and integration of Gluster, including the launch of our first Red Hat branded storage product for unstructured data. We will continue to expand our storage solutions in cloud computing and big data storage, and believe that Red Hat is well positioned to deliver disruptive solutions in the large and growing storage market."

GAAP operating income for the third quarter was $53.6 million, or 18.5% operating margin. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the third quarter was $78.8 million, up 36% year-over-year. Non-GAAP operating margin was 27.2%, up 260 basis points from the year ago quarter.

Net income for the quarter was $38.2 million, or $0.19 per diluted share, compared with $26.0 million, or $0.13 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 $55.7 million, or $0.28 per diluted share, as compared to $39.1 million, or $0.20 per diluted share, in the year ago quarter.

Operating cash flow was $96.6 million for the third quarter, as compared to $70.8 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $819.6 million, an increase of 20% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2011 was $1.2 billion.

"We continued to deliver consistent performance across our business which resulted in strong growth in our key financial metrics. At the same time, we continued to invest in strategic growth initiatives." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "When compared to the first three quarters of last fiscal year, our year-to-date revenue, non-GAAP operating income and operating cash flow are up 26%, 35% and 35%, respectively."

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 more than 70 offices spanning the globe. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, management, storage and service-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; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 floods, including 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.

Red Hat Inc., Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                     
 
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
Revenue:
 
Subscriptions $ 246,538 $ 198,842 $ 710,408 $ 564,101
Training and services   43,488     36,734   125,684     100,380
 
 
Total subscription, training and services revenue   290,026     235,576   836,092     664,481
 
Cost of revenue:
 
Subscriptions 17,041 13,336 48,876 38,256
Training and services   28,148     26,408   85,399     70,427
 
 
Total cost of subscription, training and services revenue   45,189     39,744   134,275     108,683
 
 
Total gross profit 244,837 195,832 701,817 555,798
 
Operating expense:
Sales and marketing 107,561 85,138 304,617 239,136
Research and development 53,739 43,083 153,515 126,102
General and administrative   29,965     29,655   92,277     84,294
 
Total operating expense   191,265     157,876   550,409     449,532
 
Income from operations 53,572 37,956 151,408 106,266
Interest income 2,075 1,608 6,138 5,046
Other income (loss), net   (227 )   462   (167 )   2,140
 
 
Income before provision for income taxes 55,420 40,026 157,379 113,452
Provision for income taxes   17,180     14,009   46,722     39,708
 
Net income $ 38,240   $ 26,017 $ 110,657   $ 73,744
 
Net income-diluted $ 38,240   $ 26,017 $ 110,657   $ 73,744
 
Net income per share:
Basic $ 0.20 $ 0.14 $ 0.57 $ 0.39
Diluted $ 0.19 $ 0.13 $ 0.56 $ 0.38
 
Weighted average shares outstanding:
Basic 193,393 191,296 193,162 189,410
Diluted 196,468 196,908 196,493 195,723

 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                 
ASSETS
November 30, February 28,
2011 2011 (1)
(Unaudited)
Current assets:
Cash and cash equivalents $ 526,665 $ 642,630
Investments in debt and equity securities 281,647 217,970
Accounts receivable, net 206,449 184,741
Deferred tax assets, net 69,460 75,720
Prepaid expenses 67,422 62,364
Other current assets   2,175     1,133  
 
Total current assets 1,153,818 1,184,558
 
Property and equipment, net 83,925 75,558
Goodwill 591,061 463,673
Identifiable intangibles, net 104,566 109,932
Investments in debt securities 408,455 331,791
Other assets, net   38,449     33,810  
 
Total assets $ 2,380,274   $ 2,199,322  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,405 $ 16,285
Accrued expenses 101,107 90,229
Deferred revenue 609,746 572,637
Other current obligations   632     650  
 
Total current liabilities 733,890 679,801
 
Deferred lease credits 5,058 5,215
Long term deferred revenue 209,869 199,617
Other long term obligations 24,060 23,990
Stockholders' equity:
Common stock 23 22
Additional paid-in capital 1,679,955 1,610,238
Retained earnings 355,707 245,050
Treasury stock, at cost (619,744 ) (562,792 )
Accumulated other comprehensive loss   (8,544 )   (1,819 )
 
Total stockholders' equity   1,407,397     1,290,699  
 
Total liabilities and stockholders' equity $ 2,380,274   $ 2,199,322  
 
(1) derived from audited financial statements

 
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,
2011 2010   2011 2010
 
Cash flows from operating activities:
Net income $ 38,240 $ 26,017 $ 110,657 $ 73,744

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

 
Depreciation and amortization 12,392 11,829 38,278 35,240
Share-based compensation expense 20,770 15,340 55,710 44,189
Deferred income taxes 17,015 7,911 36,225 29,697
Excess tax benefits from share-based payment arrangements (7,626 ) (10,800 ) (24,298 ) (31,999 )
Gain on sale of available-for-sale equity securities - (1,726 ) (1,307 ) (2,843 )
Other (233 ) 673 757 789
Changes in operating assets and liabilities:
Accounts receivable (35,014 ) (23,762 ) (23,429 ) (11,030 )
Prepaid expenses (3,096 ) (4,613 ) (6,324 ) (9,357 )
Accounts payable 6,585 5,544 6,209 2,662
Accrued expenses 15,621 16,343 15,386 24,595
Deferred revenue 32,046 26,803 56,167 39,184
Other   (144 )   1,261     (159 )   877  
 
Net cash provided by operating activities   96,556     70,820     263,872     195,748  
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (329,730 ) (314,729 ) (731,016 ) (535,093 )
Proceeds from sales and maturities of available-for-sale debt securities 196,991 191,259 578,267 605,388
Proceeds from sales of available-for-sale equity securities - 1,843 1,346 3,000
Acquisition of business, net of cash acquired (135,210 ) (31,381 ) (135,210 ) (31,381 )
Purchase of strategic equity investments (1,622 ) - (2,622 ) -
Purchase of developed technologies and other intangible assets (643 ) (9,481 ) (4,245 ) (12,426 )
Purchase of property and equipment   (11,115 )   (10,079 )   (31,294 )   (25,171 )
 
Net cash provided by (used in) investing activities   (281,329 )   (172,568 )   (324,774 )   4,317  
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 7,626 10,800 24,298 31,999
Proceeds from exercise of common stock options 7,139 24,654 15,552 80,353
Purchase of treasury stock - - (56,952 ) (79,355 )
Payments related to net settlement of employee share-based compensation awards (20,118 ) (14,899 ) (32,103 ) (23,089 )
Proceeds from other borrowings 66 335 66 335
Payments on other borrowings   (136 )   -     (825 )   (877 )
 
Net cash provided by (used in) financing activities   (5,423 )   20,890     (49,964 )   9,366  
 
Effect of foreign currency exchange rates on cash and cash equivalents (20,597 ) 6,545 (5,099 ) (2,635 )
Net increase (decrease) in cash and cash equivalents (210,793 ) (74,313 ) (115,965 ) 206,796
Cash and cash equivalents at beginning of the period   737,458     669,227     642,630     388,118  
 
Cash and cash equivalents at end of period $ 526,665   $ 594,914   $ 526,665   $ 594,914  

       
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 Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
Cost of revenue $ 2,245 $ 1,607 $ 5,877 $ 4,168
Sales and marketing 7,157 4,922 18,829 13,469
Research and development 5,368 3,960 14,445 11,395
General and administration   6,000     4,851     16,559     15,157  
Total share-based compensation expense $ 20,770   $ 15,340   $ 55,710   $ 44,189  
 
 
Amortization of intangible assets expense included in Consolidated Statements of Operations:
 
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
Cost of revenue $ 669 $ 887 $ 2,864 $ 2,295
Sales and marketing 1,957 2,076 5,874 6,237
Research and development 940 925 3,254 2,775
General and administration   905     839     2,616     2,494  
Total amortization of intangible assets expense $ 4,471   $ 4,727   $ 14,608   $ 13,801  
 
 
 
 
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
GAAP net income $ 38,240 $ 26,017 $ 110,657 $ 73,744
 
Provision for income taxes   17,180     14,009     46,722     39,708  
 
GAAP income before provision for income taxes $ 55,420 $ 40,026 $ 157,379 $ 113,452
 
Add: Non-cash share-based compensation expense 20,770 15,340 55,710 44,189
Add: Amortization of intangible assets   4,471     4,727     14,608     13,801  
 
Non-GAAP adjusted income before provision for income taxes $ 80,661   $ 60,093   $ 227,697   $ 171,442  
 
Provision for income taxes (1)   25,005     21,033     68,521     60,005  
 
Non-GAAP adjusted net income $ 55,656   $ 39,060   $ 159,176   $ 111,437  
 
Non-GAAP adjusted net income-diluted $ 55,656   $ 39,060   $ 159,176   $ 111,437  
 
Non-GAAP adjusted net income per share:
Basic $ 0.29 $ 0.20 $ 0.82 $ 0.59
Diluted $ 0.28 $ 0.20 $ 0.81 $ 0.57
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $ 80,661 $ 60,093 $ 227,697 $ 171,442
Estimated annual effective tax rate   31 %   35 %   31 %   35 %
Non-GAAP provision for income taxes before discrete tax benefit $ 25,005 $ 21,033 $ 70,586 $ 60,005
Discrete tax benefit   -     -     2,065     -  
Provision for income taxes on Non-GAAP adjusted net income $ 25,005   $ 21,033   $ 68,521   $ 60,005  
 

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 Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
GAAP gross profit $ 244,837 $ 195,832 $ 701,817 $ 555,798
 
Add: Non-cash share-based compensation expense 2,245 1,607 5,877 4,168
Add: Amortization of intangible assets   669     887     2,864     2,295  
 
Non-GAAP gross profit $ 247,751   $ 198,326   $ 710,558   $ 562,261  
 
Non-GAAP gross margin 85 % 84 % 85 % 85 %
 
 
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
GAAP operating expenses $ 191,265 $ 157,876 $ 550,409 $ 449,532
 
Deduct: Non-cash share-based compensation expense (18,525 ) (13,733 ) (49,833 ) (40,021 )
Deduct: Amortization of intangible assets   (3,802 )   (3,840 )   (11,744 )   (11,506 )
 
Non-GAAP adjusted operating expenses $ 168,938   $ 140,303   $ 488,832   $ 398,005  
 
 
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2011 2010 2011 2010
 
GAAP operating income $ 53,572 $ 37,956 $ 151,408 $ 106,266
 
Add: Non-cash share-based compensation expense 20,770 15,340 55,710 44,189
Add: Amortization of intangible assets   4,471     4,727     14,608     13,801  
 
Non-GAAP adjusted operating income $ 78,813   $ 58,023   $ 221,726   $ 164,256  
 
Non-GAAP adjusted operating margin 27.2 % 24.6 % 26.5 % 24.7 %
 

Media Contact:
Red Hat Inc.
Leigh Day, 919-754-4369
lday@redhat.com
or
Investor Relations:
Red Hat Inc.
Tom McCallum, 919-754-4630
tmccallum@redhat.com

Source: Red Hat, Inc.

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