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Press releases

Red Hat Reports Second Quarter Results

Sep 23, 2009

Revenue of $184 million, up 12% year-over-year
Deferred Revenue of $581 million, up 17% year-over-year
Repurchased $47 million, or 2.3 million shares, of common stock

RALEIGH, N.C., Sep 23, 2009 (BUSINESS WIRE) -- Red Hat (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2010 second quarter ended August 31, 2009.

Total revenue for the quarter was $183.6 million, an increase of 12% from the year ago quarter. Subscription revenue for the quarter was $156.3 million, up 15% year-over-year.

"IT organizations continue to move ahead with purchases of high value solutions, and Red Hat is capitalizing on this demand as a result of our strong customer relationships and proven value proposition. These factors contributed to our better than expected total revenue in the second quarter, and drove annual subscription revenue growth of 15% for both the quarter and first half of fiscal year 2010. We continue to be optimistic about Red Hat's future and believe the company is well positioned when the economic and IT spending environment improves," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "In addition to solid second quarter results, we also marked a new milestone in Red Hat's ten year history as a public company by our inclusion in July as a component of the S&P 500."

GAAP operating income for the quarter was $27.5 million, up 29% from $21.4 million in the year ago quarter. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the quarter was $43.6 million, up 21% year-over-year. GAAP operating margin was 15.0%. Non-GAAP operating margin was 23.7%, up 170 basis points from the year ago quarter.

GAAP net income for the quarter was $28.9 million, or $0.15 per diluted share, compared with $21.1 million, or $0.10 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $39.4 million, or $0.20 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $30.1 million, or $0.14 per diluted share, in the year ago quarter. Both GAAP and non-GAAP net income for the quarter include a discrete tax benefit of $7.3 million, adding approximately $0.04 per diluted share. Excluding this tax benefit, GAAP earnings per share would have been $0.11 and non-GAAP earnings per share would have been $0.16.

Operating cash flow totaled $62.0 million compared to $54.3 million from the year ago quarter, up 14% year-over-year. At quarter end, the company's total deferred revenue balance was $580.9 million, an increase of 17% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2009 were $911.8 million.

"During the second quarter, Red Hat's financial performance was strong across all of our key metrics. We delivered double digit growth in revenue and deferred revenue, expanded our non-GAAP operating margins and generated strong cash flow from operations," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We are particularly pleased with the growth of the current portion of deferred revenue combined with the lengthening of our average subscription duration."

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 open source solutions provider, 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 five 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 delays or reductions in information technology spending, 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; 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.

RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands - except per share amounts)

				Three Months Ended						Six Months Ended
				August 31,			August 31,			August 31,			August 31,
					2009			2008			2009			2008
Revenue:

		Subscriptions		$	156,273		$	135,709		$	305,063		$	266,403
		Training and services			27,360			28,674			52,958			54,615


			Total subscription, training and services revenue		183,633			164,383			358,021			321,018

Cost of revenue:

		Subscriptions			10,972			9,720			21,023			18,677
		Training and services			17,468			17,788			33,886			35,260


			Total cost of subscription, training and services revenue		28,440			27,508			54,909			53,937


	Total gross profit				155,193			136,875			303,112			267,081

Operating expense:
	Sales and marketing				66,768			59,566			130,745			118,837
	Research and development				36,360			31,728			71,462			60,639
	General and administrative				24,523			24,177			48,308			46,291

		Total operating expense			127,651			115,471			250,515			225,767

Income from operations					27,542			21,404			52,597			41,314
Other income, net					5,759			14,778			9,240			24,798
Interest expense					(43	)		(1,530	)		(96	)		(3,116	)

Income before provision for income taxes					33,258			34,652			61,741			62,996
Provision for income taxes					4,321			13,514			14,290			24,568

Net income				$	28,937		$	21,138		$	47,451		$	38,428

Net income-diluted				$	28,937		$	22,032		$	47,451		$	40,215

Net income per share:
	Basic			$	0.15		$	0.11		$	0.25		$	0.20
	Diluted			$	0.15		$	0.10		$	0.25		$	0.18

Weighted average shares outstanding:
	Basic				187,099			191,485			188,007			191,132
	Diluted				192,659			220,039			193,060			219,472

Diluted net income per share computation:
Net income, basic				$	28,937		$	21,138		$	47,451		$	38,428
Interest expense on convertible debentures, net of related GAAP tax effects					0			435			0			869
Amortization of debt issuance costs, net of related GAAP tax effects					0			459			0			918

Net income, diluted				$	28,937		$	22,032		$	47,451		$	40,215

RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In thousands)

ASSETS
				August 31			February 28,
					2009			2009
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	493,052		$	515,548
	Investments in debt and equity securities				228,384			147,178
	Accounts receivable, net				112,837			128,669
	Prepaid expenses and other current assets				106,550			99,437

			Total current assets		940,823			890,832

	Property and equipment, net				70,276			67,913
	Goodwill				439,035			438,109
	Identifiable intangibles, net				115,611			122,177
	Investments in debt securities				190,370			183,363
	Other assets, net				36,957			51,242

			Total assets	$	1,793,072		$	1,753,636

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	17,938		$	9,576
	Accrued expenses				57,033			54,123
	Deferred revenue				419,505			382,050
	Other current obligations				878			900

		Total current liabilities			495,354			446,649

	Deferred lease credits				4,191			4,470
	Long term deferred revenue				161,430			161,032
	Other long term obligations				34,573			35,432
Stockholders' equity:
	Common stock				21			21
	Additional paid-in capital				1,320,005			1,281,469
	Retained earnings				97,970			50,519
	Treasury stock, at cost				(330,240	)		(236,283	)
	Accumulated other comprehensive income				9,768			10,327

			Total stockholders' equity		1,097,524			1,106,053

			Total liabilities and stockholders' equity	$	1,793,072		$	1,753,636

RED HAT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

			Three Months Ended						Six Months Ended
			August 31,			August 31,			August 31,			August 31,
				2009			2008			2009			2008

Cash flows from operating activities:
Net income			$	28,937		$	21,138		$	47,451		$	38,428
Adjustments to reconcile net income to net cash provided by
	operating activities:
		Depreciation and amortization		11,442			9,828			22,252			18,925
		Share-based compensation expense		11,013			10,870			21,689			21,431
		Deferred income taxes		(940	)		11,462			5,489			20,229
		Excess tax benefits from share-based payment arrangements		(3,556	)		(15,489	)		(17,756	)		(24,456	)
		Gain on sale of available-for-sale equity securities		(3,465	)		(4,996	)		(3,663	)		(4,996	)
		Other		(80	)		807			(6	)		1,367
Changes in operating assets and liabilities net of effects of acquisitions:
		Accounts receivable		(5,666	)		2,018			20,612			21,338
		Prepaid expenses and other current assets		4,288			(1,908	)		4,932			(6,910	)
		Accounts payable		4,790			(2,404	)		7,788			(7,974	)
		Accrued expenses		5,214			7,816			2,185			9,802
		Deferred revenue		10,155			15,261			12,516			30,714
		Other assets, net		(127	)		(137	)		(281	)		(270	)

		Net cash provided by operating activities		62,005			54,266			123,208			117,628

Cash flows from investing activities:
	Purchase of available-for-sale debt securities			(131,437	)		(26,059	)		(288,472	)		(331,705	)
	Proceeds from sales and maturities of available-for-sale debt securities			83,655			133,282			206,104			349,816
	Proceeds from sales of available-for-sale equity securities			3,838			5,568			4,059			5,568
	Acquisitions of businesses, net of cash acquired			-			(3,052	)		-			(46,802	)
	Purchase of developed technologies and other intangible assets			(1,081	)		(727	)		(2,070	)		(2,342	)
	Purchase of property and equipment			(6,635	)		(4,430	)		(12,662	)		(13,952	)

		Net cash provided by (used in) investing activities		(51,660	)		104,582			(93,041	)		(39,417	)

Cash flows from financing activities:
	Excess tax benefits from share-based payment arrangements			3,556			15,489			17,756			24,456
	Proceeds from exercise of common stock options			14,189			5,342			18,589			16,789
	Purchase of treasury stock			(47,186	)		-			(93,957	)		(8,347	)
	Payments related to net settlement of employee share-based compensation awards			(502	)		(219	)		(2,300	)		(1,019	)
	Structured stock repurchase			-			-			-			1,989
	Proceeds from other borrowings			-			-			-			-
	Payments on other borrowings			-			(66	)		(900	)		(23	)

		Net cash provided by (used in) financing activities		(29,943	)		20,546			(60,812	)		33,845

Effect of foreign currency exchange rates on cash and cash equivalents				2,034			(2,477	)		8,149			(2,319	)
Net increase (decrease) in cash and cash equivalents				(17,564	)		176,917			(22,496	)		109,737
Cash and cash equivalents at beginning of the period				510,616			610,540			515,548			677,720

Cash and cash equivalents at end of period			$	493,052		$	787,457		$	493,052		$	787,457

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						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
			2009			2008			2009			2008

	Cost of revenue	$	759		$	643		$	1,560		$	1,324
	Sales and marketing		3,138			2,205			6,248			6,202
	Research and development		3,075			3,547			6,348			6,054
	General and administration		4,041			4,475			7,533			7,851
	Total share-based compensation expense	$	11,013		$	10,870		$	21,689		$	21,431

Amortization of intangible assets expense included in Consolidated Statements of Operations:

		Three Months Ended						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
			2009			2008			2009			2008

	Cost of revenue	$	989		$	810		$	1,949		$	1,545
	Sales and marketing		2,293			2,305			4,615			4,560
	Research and development		925			0			1,851			0
	General and administration		804			754			1,601			1,457
	Total amortization of intangible assets expense	$	5,011		$	3,869		$	10,016		$	7,562

		Three Months Ended						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
			2009			2008			2009			2008

GAAP net income		$	28,937		$	21,138		$	47,451		$	38,428

Provision for income taxes			4,321			13,514			14,290			24,568

GAAP income before provision for income taxes		$	33,258		$	34,652		$	61,741		$	62,996

Add: Non-cash share-based compensation expense per FAS 123R			11,013			10,870			21,689			21,431
Add: Amortization of intangible assets			5,011			3,869			10,016			7,562

Non-GAAP adjusted income before provision for income taxes		$	49,282		$	49,391		$	93,446		$	91,989

Provision for income taxes (1)		$	9,930		$	19,263		$	25,387		$	35,876

Non-GAAP adjusted net income		$	39,352		$	30,128		$	68,059		$	56,113

Non-GAAP adjusted net income-diluted		$	39,352		$	31,022		$	68,059		$	57,900

Non-GAAP adjusted net income per share:
	Basic	$	0.21		$	0.16		$	0.36		$	0.29
	Diluted	$	0.20		$	0.14		$	0.35		$	0.26


Non-GAAP diluted net income per share computation:
Non-GAAP adjusted net income		$	39,352		$	30,128		$	68,059		$	56,113
Interest expense on convertible debentures, net of related GAAP tax effects			0			435			0			869
Amortization of debt issuance costs, net of related GAAP tax effects			0			459			0			918

Non-GAAP adjusted net income-diluted		$	39,352		$	31,022		$	68,059		$	57,900

(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision		$	49,282		$	49,391		$	93,446		$	91,989
	Estimated annual effective tax rate		35	%		39	%		35	%		39	%
Non-GAAP provision for income taxes before discrete tax benefit		$	17,249		$	19,263		$	32,706		$	35,876
	Discrete tax benefit		7,319			0			7,319			0
Provision for income taxes on Non-GAAP adjusted net income		$	9,930		$	19,263		$	25,387		$	35,876

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						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
		2009			2008			2009			2008

GAAP gross profit	$	155,193		$	136,875		$	303,112		$	267,081

Add: Non-cash share-based compensation expense per FAS 123R		759			643			1,560			1,324
Add: Amortization of intangible assets		989			810			1,949			1,545

Non-GAAP gross profit	$	156,941		$	138,328		$	306,621		$	269,950

Non-GAAP gross margin		85	%		84	%		86	%		84	%

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
		2009			2008			2009			2008

GAAP operating expenses	$	127,651		$	115,471		$	250,515		$	225,767

Deduct: Non-cash share-based compensation expense per FAS 123R		(10,254	)		(10,227	)		(20,129	)		(20,107	)
Deduct: Amortization of intangible assets		(4,022	)		(3,059	)		(8,067	)		(6,017	)

Non-GAAP adjusted operating expenses	$	113,375		$	102,185		$	222,319		$	199,643

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
		2009			2008			2009			2008

GAAP operating income	$	27,542		$	21,404		$	52,597		$	41,314

Add: Non-cash share-based compensation expense per FAS 123R		11,013			10,870			21,689			21,431
Add: Amortization of intangible assets		5,011			3,869			10,016			7,562

Non-GAAP adjusted operating income	$	43,566		$	36,143		$	84,302		$	70,307

Non-GAAP adjusted operating margin		23.7	%		22.0	%		23.5	%		21.9	%

SOURCE: Red Hat

Red Hat Inc.
Media Contact:
Kara Schiltz, 919-301-3002; kschiltz@redhat.com or
Investor Relations:
Tom McCallum, 919-754-4630; tmccallum@redhat.com

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Red Hat Reports Second Quarter Results

Revenue of $184 million, up 12% year-over-year
Deferred Revenue of $581 million, up 17% year-over-year
Repurchased $47 million, or 2.3 million shares, of common stock

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Red Hat Reports Second Quarter Results

Revenue of $184 million, up 12% year-over-yearDeferred Revenue of $581 million, up 17% year-over-yearRepurchased $47 million, or 2.3 million shares, of common stock

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Revenue of $184 million, up 12% year-over-year
Deferred Revenue of $581 million, up 17% year-over-year
Repurchased $47 million, or 2.3 million shares, of common stock