Red Hat, Inc.
Mar 28, 2012

Red Hat Reports Fourth Quarter and Fiscal Year 2012 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 29, 2012.

Total revenue for the quarter was $297.0 million, an increase of 21% from the year ago quarter. Subscription revenue for the quarter was $255.2 million, up 22% year-over-year. For the full fiscal year 2012, total revenue was $1.13 billion, an increase of 25% over the prior year, and subscription revenue was $965.6 million, up 25% year-over-year.

"The strength of our fourth quarter was a fitting conclusion to a remarkably strong year for our business. Our investments to expand our geographic sales footprint and add sales people with targeted industry and product knowledge has accelerated our growth," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Red Hat is the first pure-play, open source company, and one of only a select few software companies, to have achieved the billion dollar revenue milestone. The open source technologies which we provide are being selected by more customers every day as they re-architect the infrastructure of their data centers for greater efficiency, agility and cloud enablement."

GAAP operating income for the fourth quarter and the full fiscal year 2012 was $48.5 million and $199.9 million, respectively. GAAP operating margin was 16.3% in the fourth quarter and 17.6% for the full year. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the quarter was $77.2 million, or a 26.0% operating margin, and full year non-GAAP operating income was $298.9 million. Full year non-GAAP operating margin was 26.4%, representing an increase of 160 basis points from the prior year.

GAAP net income for the fourth quarter was $36.0 million, or $0.18 per diluted share, compared with $38.2 million, or $0.19 per diluted share, for the prior quarter and $33.5 million, or $0.17 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the fourth quarter was $57.2 million, or $0.29 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 $55.7 million, or $0.28 per diluted share in the prior quarter and $51.4 million, or $0.26 per diluted share in the year ago quarter. Both the GAAP and non-GAAP results for the year ago fourth quarter benefited by approximately $0.02 per share as a result of the retroactive reenactment in December 2010 of the US research tax credit.

For the full year, GAAP net income was $146.6 million or $0.75 per diluted share, compared with $107.3 million or $0.55 per diluted share in the prior year. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP adjusted net income for the year was $216.4 million or $1.10 per diluted share, compared to $162.8 million and $0.83 per diluted share for the previous fiscal year.

Operating cash flow totaled $128.0 million for the fourth quarter and $391.9 million for the full year. At the end of the fiscal year, the company's total deferred revenue balance was $946.7 million, an increase of 23% on a year-over-year basis and 16% sequentially. Cash and investments at February 29, 2012 totaled $1.3 billion after repurchasing approximately $76.3 million, or approximately 1.8 million shares, of common stock in the fourth quarter. For the full fiscal year 2012, Red Hat repurchased approximately $133.2 million, or approximately 3.2 million shares, of common stock.

"We experienced impressive breadth and depth of demand for our technologies this quarter whether by geography or by industry vertical. This resulted in record financial metrics for both the fourth quarter and the full fiscal year 2012," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Our strategy for growth, coupled with relentless day-to-day execution of the business, has been successful. We experienced a significant increase in large deals, both in Q4 and for the full year which contributed to annual organic growth of 25% in revenue, 33% in non-GAAP operating income and 35% growth in operating cash flow."

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 earthquakes and floods. 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, Inc. 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 Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011 (1)
Revenue:
 
Subscriptions $ 255,167 $ 209,303 $ 965,575 $ 773,404
Training and services   41,844     35,493     167,528     135,873  
 
 
Total subscription, training and services revenue   297,011     244,796     1,133,103     909,277  
 
Cost of revenue:
 
Subscriptions 17,360 14,742 66,237 52,997
Training and services   26,912     26,862     112,311     97,290  
 
 
Total cost of subscription, training and services revenue   44,272     41,604     178,548     150,287  
 
 
Total gross profit 252,739 203,192 954,555 758,990
 
Operating expense:
Sales and marketing 115,018 88,273 419,635 327,408
Research and development 55,147 45,150 208,662 171,253
General and administrative   34,069     30,359     126,345     114,653  
 
Total operating expense   204,234     163,782     754,642     613,314  
 
Income from operations 48,505 39,410 199,913 145,676
Interest income 2,279 1,697 8,418 6,743
Other income (expense), net   (155 )   (866 )   (322 )   1,275  
 
 
Income before provision for income taxes 50,629 40,241 208,009 153,694
Provision for income taxes   14,661     6,707     61,383     46,416  
 
Net income $ 35,968   $ 33,534   $ 146,626   $ 107,278  
 
Net income per share:
Basic $ 0.19 $ 0.17 $ 0.76 $ 0.56
Diluted $ 0.18 $ 0.17 $ 0.75 $ 0.55
 
Weighted average shares outstanding:
Basic 193,117 192,996 193,151 190,294
Diluted 195,879 197,878 196,451 196,353
 
 
(1) Derived from audited financial statements
 
 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
       
(In thousands)
 
ASSETS
February 29, February 28,
2012 2011 (1)
(Unaudited)
Current assets:
Cash and cash equivalents $ 549,217 $ 642,630
Investments in debt and equity securities 264,298 217,970
Accounts receivable, net 255,180 184,741
Deferred tax assets, net 69,765 75,720
Prepaid expenses 81,266 62,364
Other current assets   1,629     1,133  
 
Total current assets 1,221,355 1,184,558
 
Property and equipment, net 92,065 75,558
Goodwill 591,563 463,673
Identifiable intangibles, net 100,638 109,932
Investments in debt securities 446,838 331,791
Other assets, net   38,640     33,810  
 
Total assets $ 2,491,099   $ 2,199,322  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 114,078 $ 106,514
Deferred revenue 711,408 572,637
Other current obligations   819     650  
 
Total current liabilities 826,305 679,801
 
Long term deferred revenue 235,328 199,617
Other long term obligations 30,649 29,205
Stockholders' equity:
Common stock 23 22
Additional paid-in capital 1,709,082 1,610,238
Retained earnings 391,676 245,050
Treasury stock, at cost (696,012 ) (562,792 )
Accumulated other comprehensive (loss) income   (5,952 )   (1,819 )
 
Total stockholders' equity   1,398,817     1,290,699  
 
Total liabilities and stockholders' equity $ 2,491,099   $ 2,199,322  
 
 
(1) Derived from audited financial statements
 
 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
         
 
Three Months Ended Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011 (1)
 
Cash flows from operating activities:
Net income $ 35,968 $ 33,534 $ 146,626 $ 107,278

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

Depreciation and amortization 13,094 12,757 51,372 47,997
Share-based compensation expense 23,557 16,408 79,267 60,597
Deferred income taxes 9,477 4,151 45,702 33,848
Excess tax benefits from share-based payment arrangements (5,633 ) (10,292 ) (29,931 ) (42,291 )
Gain on sale of available-for-sale equity securities (617 ) (903 ) (1,924 ) (3,746 )
Other (19 ) 716 738 1,505
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (46,981 ) (30,481 ) (70,410 ) (41,512 )
Prepaid expenses (12,866 ) (7,863 ) (19,190 ) (17,220 )
Accounts payable and accrued expenses (9,090 ) 2,277 12,504 29,534
Deferred revenue 120,688 73,540 176,855 112,724
Other   433     1,157     274     2,034  
 
Net cash provided by operating activities   128,011     95,001     391,883     290,748  
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (231,958 ) (216,327 ) (962,974 ) (751,420 )
Proceeds from sales and maturities of available-for-sale debt securities 213,318 165,472 791,585 770,860
Proceeds from sales of available-for-sale equity securities 633 939 1,979 3,938
Acquisitions of businesses, net of cash acquired - - (135,210 ) (31,381 )
Net purchase of strategic equity investments - - (2,622 ) -
Purchase of developed technologies and other intangible assets (1,104 ) (1,667 ) (5,349 ) (14,093 )
Purchase of property and equipment   (14,974 )   (7,588 )   (46,269 )   (32,759 )
 
Net cash used in investing activities   (34,085 )   (59,171 )   (358,860 )   (54,855 )
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 5,633 10,292 29,931 42,291
Proceeds from exercise of common stock options 1,259 4,090 16,812 84,443
Purchase of treasury stock (76,268 ) (10,791 ) (133,220 ) (90,146 )
Payments related to net settlement of employee share-based compensation awards (4,229 ) (3,162 ) (36,332 ) (26,250 )
Payments on other borrowings (319 ) (16 ) (1,145 ) (876 )
Proceeds from other borrowings   52     -     118     318  
 
Net cash provided by (used in) financing activities   (73,872 )   413     (123,836 )   9,780  
 
Effect of foreign currency exchange rates on cash and cash equivalents 2,498 11,473 (2,600 ) 8,839
Net increase (decrease) in cash and cash equivalents 22,552 47,716 (93,413 ) 254,512
Cash and cash equivalents at beginning of the period   526,665     594,914     642,630     388,118  
 
Cash and cash equivalents at end of period $ 549,217   $ 642,630   $ 549,217   $ 642,630  
 
 
(1) Derived from audited financial statements
 
 
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 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
Cost of revenue $ 2,003 $ 1,884 $ 7,880 $ 6,053
Sales and marketing 6,231 5,502 25,060 18,971
Research and development 7,126 4,244 21,570 15,639
General and administration   8,197     4,778     24,757     19,934  
Total share-based compensation expense $ 23,557   $ 16,408   $ 79,267   $ 60,597  
 
 
Amortization of intangible assets expense included in Consolidated Statements of Operations:
 
Three Months Ended Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
Cost of revenue $ 670 $ 979 $ 3,533 $ 3,274
Sales and marketing 2,473 2,085 8,348 8,322
Research and development 940 1,250 4,194 4,025
General and administration   1,058     846     3,674     3,340  
Total amortization of intangible assets expense $ 5,141   $ 5,160   $ 19,749   $ 18,961  
 
 
 
 
Three Months Ended Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
GAAP net income $ 35,968 $ 33,534 $ 146,626 $ 107,278
 
Provision for income taxes   14,661     6,707     61,383     46,416  
 
GAAP income before provision for income taxes $ 50,629 $ 40,241 $ 208,009 $ 153,694
 
Add: Non-cash share-based compensation expense 23,557 16,408 79,267 60,597
Add: Amortization of intangible assets   5,141     5,160     19,749     18,961  
 
Non-GAAP adjusted income before provision for income taxes $ 79,327   $ 61,809   $ 307,025   $ 233,252  
 
Provision for income taxes (1)   22,082     10,437     90,603     70,442  
 
Non-GAAP adjusted net income (basic and diluted) $ 57,245   $ 51,372   $ 216,422   $ 162,810  
 
Non-GAAP adjusted net income per share:
Basic $ 0.30 $ 0.27 $ 1.12 $ 0.86
Diluted $ 0.29 $ 0.26 $ 1.10 $ 0.83
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $ 79,327 $ 61,809 $ 307,025 $ 233,252
Estimated annual effective tax rate   27.8 %   16.9 %   30.2 %   30.2 %
Non-GAAP provision for income taxes before discrete tax benefit $ 22,082 $ 10,437 $ 92,668 $ 70,442
Discrete tax benefit   -     -     2,065     -  
Provision for income taxes on Non-GAAP adjusted net income $ 22,082   $ 10,437   $ 90,603   $ 70,442  
 
 
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 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
GAAP gross profit $ 252,739 $ 203,192 $ 954,555 $ 758,990
 
Add: Non-cash share-based compensation expense 2,003 1,884 7,880 6,053
Add: Amortization of intangible assets   670     979     3,533     3,274  
 
Non-GAAP gross profit $ 255,412   $ 206,055   $ 965,968   $ 768,317  
 
Non-GAAP gross margin 86.0 % 84.2 % 85.2 % 84.5 %
 
 
Three Months Ended Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
GAAP operating expenses $ 204,234 $ 163,782 $ 754,642 $ 613,314
 
Deduct: Non-cash share-based compensation expense (21,554 ) (14,524 ) (71,387 ) (54,544 )
Deduct: Amortization of intangible assets   (4,471 )   (4,181 )   (16,216 )   (15,687 )
 
Non-GAAP adjusted operating expenses $ 178,209   $ 145,077   $ 667,039   $ 543,083  
 
 
Three Months Ended Twelve Months Ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
 
GAAP operating income $ 48,505 $ 39,410 $ 199,913 $ 145,676
 
Add: Non-cash share-based compensation expense 23,557 16,408 79,267 60,597
Add: Amortization of intangible assets   5,141     5,160     19,749     18,961  
 
Non-GAAP adjusted operating income $ 77,203   $ 60,978   $ 298,929   $ 225,234  
 
Non-GAAP adjusted operating margin 26.0 % 24.9 % 26.4 % 24.8 %
 

Red Hat Inc.
Media Contact:
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
or
Investor Relations:
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tmccallum@redhat.com

Source: Red Hat Inc.

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