Red Hat Reports Fourth Quarter and Fiscal Year 2011 Results

• Fourth quarter revenue of $245 million, up 25% year-over-year
• Fourth quarter subscription revenue of $209 million, up 24% year-over-year
• Fourth quarter GAAP EPS of $0.17, up 42% year-over-year; non-GAAP EPS of $0.26, up 37% year-over-year
• Fourth quarter operating cash flow of $95 million, up 22% 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 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.

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