* Revenue of $165.3 million, up 22% year over year and within guidance
on a comparable currency basis
* GAAP EPS of 12 cents, Non-GAAP EPS of 24 cents exceeds guidance
* Operating Cash-flow of $59.1 million
RALEIGH, N.C. -- December 22, 2008
Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source
solutions, today announced financial results for its fiscal year 2009
third quarter ended November 30, 2008.
Total revenue for the quarter was $165.3 million, an increase of 22% from
the year ago quarter and 1% from the prior quarter. Subscription revenue
for the quarter was $135.5 million, up 17% year-over-year and flat
sequentially.
Foreign exchange rate changes during the quarter, as compared to the
second quarter, reduced quarterly revenues and expenses by $6.9 million
and $4.8 million, respectively, resulting in a negative impact on
operating income of $2.1 million. For the quarter, GAAP operating income
was $21.0 million, or a 12.7% operating margin. After adjusting for stock
compensation and amortization expenses, non-GAAP operating income was
$38.4 million, or a 23.2% operating margin, up 120 basis points from the
prior quarter despite the strengthening US dollar and the Qumranet
acquisition.
Net income for the quarter was $24.3 million, or $0.12 per diluted share,
compared with $20.3 million, or $0.10 per diluted share, in the year ago
quarter. Non-GAAP adjusted net income for the quarter was $48.4 million,
or $0.24 per diluted share, after adjusting for stock compensation,
amortization and tax expense as detailed in the tables below. This
compares to non-GAAP adjusted net income of $42.8 million, or $0.20 per
diluted share in the year ago quarter.
Operating cash flow totaled $59.1 million, compared to $59.6 million from
the year ago quarter and $54.3 million from the prior quarter. At quarter
end, the company?s total deferred revenue balance was $505.1 million, an
increase of 20% on a year-over-year basis and 2% sequentially. Total cash,
cash equivalents and investments as of November 30, 2008 were $1.1 billion
after retiring $285 million of convertible debentures and repurchasing 2
million shares of common stock.
Subsequent to these repurchases, the Company?s Board of Directors
authorized a new common stock repurchase program with a capacity of up to
$250 million.
?Our solid financial results this quarter reflect our strong market
position as the low cost, high value provider of infrastructure
solutions,? stated Jim Whitehurst, President and Chief Executive Officer
of Red Hat. ?Purchasing decisions for IT have changed dramatically for
CIOs. In this budget-constrained environment, IT professionals are
adopting open source and more specifically Red Hat to save money and
enhance their competitiveness.?
"This was a strong quarter where we delivered better-than-expected
operating income, net income and cash flow,? stated Charlie Peters,
Executive Vice President and Chief Financial Officer of Red Hat. ?While
significant devaluations in most foreign currencies depressed our reported
revenue, a combination of focused cost management and natural currency
hedging enabled the company to deliver better-than-expected operating
margin.
We also took advantage of unusual market conditions and repurchased some
of our convertible bonds and common stock. This action reduced the diluted
shares outstanding by approximately 11 million, or 6%, and produced a gain
of $4.1 million, both improving earnings per share. Our balance sheet
remains very strong.?
Other highlights include the following:
* Red Hat announced an agreement with Fujitsu to provide new Linux
support services that are designed to provide quicker response times
and extended support periods for mission-critical systems through the
Red Hat Advanced Mission Critical Program. The Program combines the
mainframe expertise of Fujitsu with the enterprise Linux expertise of
Red Hat.
* Red Hat Chairman Matthew Szulik was named Ernst & Young's Overall
National Winner for Entrepreneur of the Year 2008 Award.
* Red Hat continued to develop its capabilities and offerings in
virtualization. Early in the quarter, Red Hat acquired Qumranet Inc.
which accelerates the time to market to deliver an expanded
virtualization solutions portfolio.
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 will have ended.
About Red Hat, Inc.
Red Hat, the world's leading open source solutions provider, is
headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs
ranked Red Hat first for value in Enterprise Software for four 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 applications, management and
Services Oriented Architecture (SOA) solutions, including 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 the integration of acquisitions; 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;
risks related to data and information security vulnerabilities;
ineffective management of, and control over, the Company's growth and
international operations; adverse results in litigation; 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 conditions, and governmental
and public policy changes. 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. RED HAT and JBOSS are registered
trademarks of Red Hat, Inc. and its subsidiaries in the US and other
countries.
Tables follow:
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended Nine Months Ended
November November November November
30, 30, 30, 30,
2008 2007 2008 2007
Revenue:
Subscriptions $ 135,451 $ 115,732 $ 401,854 $ 327,949
Training and 29,881 19,649 84,497 53,575
services
Total
subscription,
training and 165,332 135,381 486,351 381,524
services
revenue
Cost of revenue:
Subscriptions 8,771 8,099 27,448 24,192
Training and 17,765 12,827 53,025 35,062
services
Total cost of
subscription,
training and 26,536 20,926 80,473 59,254
services
revenue
Total gross profit 138,796 114,455 405,878 322,270
Operating expense:
Sales and marketing 58,514 47,653 177,350 139,955
Research and 34,544 25,930 95,184 71,101
development
General and 24,768 21,419 71,060 59,013
administrative
Total operating 117,826 95,002 343,594 270,069
expense
Income from 20,970 19,453 62,284 52,201
operations
Other income, net 13,795 14,440 38,593 42,048
Interest expense (1,249 ) (1,581 ) (4,365 ) (4,641 )
Income before
provision for income 33,516 32,312 96,512 89,608
taxes
Provision for income 9,211 12,029 33,779 34,947
taxes
Net income $ 24,305 $ 20,283 $ 62,733 $ 54,661
Net income-diluted $ 25,147 $ 21,177 $ 65,392 $ 57,342
Net income per share:
Basic $ 0.13 $ 0.10 $ 0.33 $ 0.28
Diluted $ 0.12 $ 0.10 $ 0.30 $ 0.26
Weighted average
shares outstanding:
Basic 190,665 194,038 190,978 194,741
Diluted 208,408 221,547 215,605 222,740
Diluted net income
per share
computation:
GAAP Net income, $ 24,305 $ 20,283 $ 62,733 $ 54,661
basic
Interest expense on
convertible
debentures, net of 387 435 1,273 1,304
related GAAP tax
effects
Amortization of debt
issuance costs, net 455 459 1,386 1,377
of related GAAP tax
effects
GAAP Net income, $ 25,147 $ 21,177 $ 65,392 $ 57,342
diluted
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
November 30, February 29,
2008 2008
(Unaudited)
Current assets:
Cash and cash equivalents $ 519,837 $ 677,720
Investments in debt and equity securities 238,794 312,442
Accounts receivable, net 113,162 127,002
Prepaid expenses and other current assets 78,142 75,192
Total current assets 949,935 1,192,356
Property and equipment, net 68,249 68,557
Goodwill 437,713 340,314
Identifiable intangibles, net 126,260 93,823
Investments in debt securities 317,821 341,781
Other assets, net 64,501 43,151
Total assets $ 1,964,479 $ 2,079,982
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,779 $ 17,341
Accrued expenses 58,345 43,260
Deferred revenue 352,701 339,088
Convertible debentures 285,500 570,000
Other current obligations 898 59
Total current liabilities 708,223 969,748
Deferred lease credits 4,630 4,977
Long term deferred revenue 152,416 133,805
Other long term obligations 19,329 20,261
Convertible debentures - -
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 1,267,432 1,170,328
Retained earnings (accumulated deficit) 34,531 (28,202 )
Treasury stock, at cost (232,311 ) (192,946 )
Accumulated other comprehensive income 10,208 1,990
(loss)
Total stockholders' equity 1,079,881 951,191
Total liabilities and stockholders' $ 1,964,479 $ 2,079,982
equity
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,
2007 2008 2007
2008
Cash flows from
operating
activities:
Net income $ 24,305 $ 20,283 $ 62,733 $ 54,661
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation
and 10,561 8,443 29,486 23,897
amortization
Deferred 7,031 10,343 27,260 28,557
income taxes
Excess tax
benefits
from (14,790 ) (17,087 ) (39,246 ) (44,206 )
share-based
payment
arrangements
Share-based
compensation 12,251 9,455 33,682 26,422
expense
Gain on sale
of strategic - - (4,996 ) -
equity
investments
Gain on
repurchase
of (4,129 ) - (4,129 ) -
convertible
debentures
Amortization
of debt 627 752 2,131 2,257
issuance
costs
Other 314 477 177 1,021
Changes in
operating assets
and liabilities
net of effects
of acquisitions:
Accounts (7,650 ) (16,986 ) 13,687 (16,741 )
receivable
Prepaid
expenses and
other (7,400 ) (1,674 ) (14,308 ) (1,673 )
current
assets
Accounts 1,836 148 (6,138 ) (1,959 )
payable
Accrued 8,774 9,660 18,576 7,278
expenses
Deferred 27,503 35,759 58,217 69,181
revenue
Other assets (85 ) 65 (355 ) (132 )
Net cash
provided by 59,148 59,638 176,777 148,563
operating
activities
Cash flows from
investing
activities:
Purchase of
investment - (354,569 ) (331,705 ) (863,159 )
securities
Proceeds from
sales and
maturities of 77,498 344,345 427,314 753,303
investment
securities
Acquisitions
of businesses, (101,338 ) - (148,140 ) (11,784 )
net of cash
acquired
Proceeds from
sale of
strategic - - 5,568 -
equity
investments
Purchase of
property and (4,212 ) (10,971 ) (18,164 ) (25,752 )
equipment
Purchase of
developed
software and (779 ) (422 ) (3,121 ) (4,775 )
other
intangible
assets
Net cash
used in (28,831 ) (21,617 ) (68,248 ) (152,167 )
investing
activities
Cash flows from
financing
activities:
Excess tax
benefits from
share-based 14,790 17,087 39,246 44,206
payment
arrangements
Net proceeds
(payments)
related to
employee (772 ) 5,390 16,017 13,920
exercise or
vest of
share-based
awards
Repurchase of
convertible (280,058 ) - (280,058 ) -
debentures
Purchase of (29,999 ) (482 ) (39,365 ) (618 )
treasury stock
Structured
stock - - 1,989 -
repurchase
Proceeds from
other - - - 2,898
borrowings
Payments on
other (48 ) - (72 ) (757 )
borrowings
Net cash
(used in)
provided by (296,087 ) 21,995 (262,243 ) 59,649
financing
activities
Effect of
foreign currency
exchange rates (1,850 ) 2,324 (4,169 ) 3,675
on cash and cash
equivalents
Net increase
(decrease) in (267,620 ) 62,340 (157,883 ) 59,720
cash and cash
equivalents
Cash and cash
equivalents at 787,457 524,619 677,720 527,239
beginning of the
period
Cash and cash
equivalents at $ 519,837 $ 586,959 $ 519,837 $ 586,959
end of period
RED HAT, INC.
NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF 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 November November November
30, 30, 30, 30,
2008 2007 2008 2007
Cost of revenue $ 723 $ 583 $ 2,047 $ 1,736
Sales and marketing 3,352 2,637 9,554 7,587
Research and 3,715 2,208 9,769 6,452
development
General and 4,461 4,027 12,311 10,647
administration
Total share-based $ 12,251 $ 9,455 $ 33,681 $ 26,422
compensation expense
Amortization of intangible assets
expense included in Consolidated
Statements of Operations:
Three Months Ended Nine Months Ended
November November November November
30, 30, 30, 30,
2008 2007 2008 2007
Cost of revenue $ 989 $ 1,127 $ 2,534 $ 3,203
Sales and marketing 2,301 1,755 6,861 5,295
Research and 1,049 0 1,049 0
development
General and 797 449 2,254 1,347
administration
Total amortization
of intangible assets $ 5,136 $ 3,331 $ 12,698 $ 9,845
expense
Three Months Ended Nine Months Ended
November November November November
30, 30, 30, 30,
2008 2007 2008 2007
GAAP net income $ 24,305 $ 20,283 $ 62,733 $ 54,661
GAAP provision for 9,211 12,029 33,779 34,947
income taxes
GAAP income before
provision for income $ 33,516 $ 32,312 $ 96,512 $ 89,608
taxes
Add: Non-cash
share-based 12,251 9,455 33,681 26,422
compensation expense
per FAS 123R
Add: Amortization of 5,136 3,331 12,698 9,845
intangible assets
Non-GAAP adjusted
income before provision $ 50,903 $ 45,098 $ 142,891 $ 125,875
for income taxes
Non-GAAP cash provision $ 2,545 $ 2,255 $ 7,145 $ 6,294
for income taxes
Non-GAAP adjusted net $ 48,358 $ 42,843 $ 135,746 $ 119,581
income
Non-GAAP adjusted net $ 49,461 $ 44,235 $ 139,632 $ 123,756
income-diluted
Non-GAAP adjusted net
income per share:
Basic $ 0.25 $ 0.22 $ 0.71 $ 0.61
Diluted $ 0.24 $ 0.20 $ 0.65 $ 0.56
Non-GAAP diluted net
income per share
computation:
Non-GAAP adjusted net $ 48,358 $ 42,843 $ 135,746 $ 119,581
income
Interest expense on
convertible debentures, 507 677 1,861 2,031
net of related 5% cash
tax effects
Amortization of debt
issuance costs, net of 596 715 2,025 2,144
related 5% cash tax
effects
Non-GAAP adjusted net $ 49,461 $ 44,235 $ 139,632 $ 123,756
income-diluted
RED HAT, INC.
RECONCILIATION OF 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 November November November
30, 30, 30, 30,
2008 2007 2008 2007
GAAP Gross profit $ 138,796 $ 114,455 $ 405,878 $ 322,270
Add: Non-cash
share-based 723 583 2,047 1,736
compensation expense
per FAS 123R
Add: Amortization of 989 1,127 2,534 3,203
intangible assets
Non-GAAP gross $ 140,508 $ 116,165 $ 410,459 $ 327,209
profit
Non-GAAP gross 85 % 86 % 84 % 86 %
margin
Three Months Ended Nine Months Ended
November November November November
30, 2008 30, 2007 30, 2008 30, 2007
GAAP operating $ 117,826 $ 95,002 $ 343,594 $ 270,069
expenses
Deduct: Non-cash
share-based (11,528 ) (8,872 ) (31,634 ) (24,686 )
compensation expense
per FAS 123R
Deduct: Amortization (4,147 ) (2,204 ) (10,164 ) (6,642 )
of intangible assets
Non-GAAP adjusted $ 102,151 $ 83,926 $ 301,796 $ 238,741
operating expenses
Three Months Ended Nine Months Ended
November November November November
30, 30, 30, 30,
2008 2007 2008 2007
GAAP operating $ 20,970 $ 19,453 $ 62,284 $ 52,201
income
Add: Non-cash
share-based 12,251 9,455 33,681 26,422
compensation expense
per FAS 123R
Add: Amortization of 5,136 3,331 12,698 9,845
intangible assets
Non-GAAP adjusted $ 38,357 $ 32,239 $ 108,663 $ 88,468
operating income
Non-GAAP adjusted 23.2 % 23.8 % 22.3 % 23.2 %
operating margin
Contact:
Red Hat
Kara Schiltz, Corporate Communications
919-301-3002
kschiltz@redhat.com
or
Tom McCallum, Investor Relations
919-754-4630
investors@redhat.com