Red Hat Reports Second Quarter Results

  • Second quarter revenue of $323 million, up 15% year-over-year
  • Second quarter subscription revenue of $279 million, up 17% year-over-year
  • Second quarter operating cash flow of $104 million, up 35% year-over-year

RALEIGH, N.C.--()--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2013 second quarter ended August 31, 2012.

Total revenue for the quarter was $322.6 million, an increase of 15% in U.S. dollars from the year ago quarter, or 20% measured in constant currency, as detailed in the tables below. Subscription revenue for the quarter was $278.8 million, up 17% in U.S. dollars year-over-year, or 22% measured in constant currency, as detailed in the tables below.

“Our double-digit growth was driven by demand for Red Hat’s open source technologies that are key to creating innovation, scale and flexibility in our customers’ data centers and their businesses,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “At Red Hat, we firmly believe in the strength of community-powered innovation. In early September, we were pleased to be recognized by Forbes, Inc. on its list of the World’s Most Innovative Companies. We are also proud that our customers who have built mission-critical systems on Red Hat technologies are also reflected on the Forbes list of innovative companies.”

GAAP operating income for the second quarter was $50.0 million, down 5% year-over-year. GAAP operating margin was 15.5%. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the second quarter was $79.2 million, up 4% year-over-year. Non-GAAP operating margin was 24.6%.

Net income for the quarter was $35.0 million, or $0.18 per diluted share, compared with $40.0 million, or $0.20 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 $54.9 million, or $0.28 per diluted share, as compared to $56.5 million, or $0.29 per diluted share, in the year ago quarter. The year ago quarter would have been $0.28 per diluted share excluding a discrete tax benefit of $2.1 million, or approximately $0.01 per share.

Operating cash flow was $103.9 million for the second quarter, as compared to $77.1 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $944.4 million, an increase of 16% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2012 was $1.36 billion.

“On a constant currency basis, subscription revenue grew 22% year-over-year while total revenue grew 20%. Our business model and offerings continue to appeal to customers despite the global economic malaise,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “This quarter marked a significant ramp-up in investments in our nascent storage business, with the launch in late June of Red Hat Storage Server 2.0. Furthermore, we announced two small technology acquisitions in the middleware space to further round out our offerings, which decreased the quarter’s EPS by approximately $0.01 per share due to one-time closing costs.”

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 is the world's leading provider of open source software solutions, taking a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As the connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. Learn more at 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 this press release.

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

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,
2012 2011 2012 2011
Revenue:
 
Subscriptions $278,800 $238,337 $551,371 $463,870
Training and services 43,795 42,983 85,956 82,196
 
 
Total subscription, training and services revenue 322,595 281,320 637,327 546,066
 
Cost of revenue:
 
Subscriptions 18,846 16,596 36,786 31,835
Training and services 29,012 30,043 57,092 57,251
 
 
Total cost of subscription, training and services revenue 47,858 46,639 93,878 89,086
 
 
Total gross profit 274,737 234,681 543,449 456,980
 
Operating expense:
Sales and marketing 123,578 99,730 244,449 197,056
Research and development 63,366 51,488 123,246 99,776
General and administrative 37,813 30,985 71,724 62,311
Facility exit costs - - 3,142 -
 
Total operating expense 224,757 182,203 442,561 359,143
 
Income from operations 49,980 52,478 100,888 97,837
Interest income 2,154 2,127 4,448 4,063
Other income (expense), net (656) 326 1,232 59
 
 
Income before provision for income taxes 51,478 54,931 106,568 101,959
Provision for income taxes 16,473 14,963 34,102 29,542
 
Net income $35,005 $39,968 $72,466 $72,417
 
Net income per share:
Basic $0.18 $0.21 $0.38 $0.38
Diluted $0.18 $0.20 $0.37 $0.37
 
Weighted average shares outstanding:
Basic 193,064 192,937 193,005 193,046
Diluted 195,795 196,171 195,929 196,428
 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
 
ASSETS
August 31, February 29,
2012 2012 (1)
(Unaudited)
Current assets:
Cash and cash equivalents $571,576 $549,217
Investments in debt and equity securities 297,876 264,298
Accounts receivable, net 215,433 255,180
Deferred tax assets, net 72,007 69,765
Prepaid expenses 85,642 81,266
Other current assets 2,135 1,629
 
Total current assets 1,244,669 1,221,355
 
Property and equipment, net 113,092 92,065
Goodwill 595,430 591,563
Identifiable intangibles, net 122,709 100,638
Investments in debt securities 490,168 446,838
Other assets, net 39,573 38,640
 
Total assets $2,605,641 $2,491,099
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $139,060 $114,078
Deferred revenue 704,573 711,408
Other current obligations 963 819
 
Total current liabilities 844,596 826,305
 
Long term deferred revenue 239,827 235,328
Other long term obligations 37,535 30,649
Stockholders' equity:
Common stock 23 23
Additional paid-in capital 1,761,524 1,709,082
Retained earnings 464,142 391,676
Treasury stock, at cost (728,894) (696,012)
Accumulated other comprehensive loss (13,112) (5,952)
 
Total stockholders' equity 1,483,683 1,398,817
 
Total liabilities and stockholders' equity $2,605,641 $2,491,099
 
 
(1) Derived from audited financial statements
 

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,
2012 2011 2012 2011
 
Cash flows from operating activities:
Net income $35,005 $39,968 $72,466 $72,417
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14,568 13,147 28,647 25,886
Share-based compensation expense 23,859 18,753 46,065 34,940
Deferred income taxes 13,036 8,155 23,063 19,210
Excess tax benefits from share-based payment arrangements (9,600) (8,112) (19,800) (16,672)
Other 529 (240) (1,840) (317)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (18,735) (20,457) 35,825 11,585
Prepaid expenses 833 65 (6,966) (3,228)
Accounts payable and accrued expenses 15,250 3,328 26,348 (611)
Deferred revenue 26,430 22,851 21,308 24,121
Other 2,678 (357) 3,141 (19)
 
Net cash provided by operating activities 103,853 77,101 228,257 167,312
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (185,028) (220,436) (507,769) (401,286)
Proceeds from sales and maturities of available-for-sale debt securities 190,094 208,693 417,779 381,276
Proceeds from sales of available-for-sale equity securities - 681 330 1,346
Acquisition of business, net of cash acquired (10,051) - (10,051) -
Purchase of strategic equity investments - (1,000) - (1,000)
Purchase of other intangible assets (24,341) (1,059) (26,863) (3,602)
Purchase of property and equipment (20,344) (11,523) (36,243) (20,179)
 
Net cash used in investing activities (49,670) (24,644) (162,817) (43,445)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 9,600 8,112 19,800 16,672
Proceeds from exercise of common stock options 2,626 3,370 6,516 8,413
Purchase of treasury stock (2,871) (38,006) (32,882) (56,952)
Payments related to net settlement of employee share-based compensation awards (3,856) (2,952) (22,688) (11,985)
Payments on other borrowings (213) (94) (477) (688)
 
Net cash provided by (used in) financing activities 5,286 (29,570) (29,731) (44,540)
 
Effect of foreign currency exchange rates on cash and cash equivalents 3,491 4,348 (13,350) 15,501
Net increase in cash and cash equivalents 62,960 27,235 22,359 94,828
Cash and cash equivalents at beginning of the period 508,616 710,223 549,217 642,630
 
Cash and cash equivalents at end of period $571,576 $737,458 $571,576 $737,458
 

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,
2012 2011 2012 2011
 
Cost of revenue $2,167 $1,842 $4,333 $3,631
Sales and marketing 7,726 6,101 15,087 11,672
Research and development 7,294 4,883 14,106 9,077
General and administration 6,672 5,927 12,539 10,560
Total share-based compensation expense $23,859 $18,753 $46,065 $34,940
 
 
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,
2012 2011 2012 2011
 
Cost of revenue $1,149 $1,216 $1,819 $2,195
Sales and marketing 2,120 1,958 4,196 3,918
Research and development 959 1,157 1,918 2,313
General and administration 1,181 865 2,324 1,711
Total amortization of intangible assets expense $5,409 $5,196 $10,257 $10,137
 
 
Facility exit costs included in Consolidated Statements of Operations:
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2012 2011 2012 Jul 03
 
Facility exit costs - - $3,142 -
 
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2012 2011 2012 2011
 
GAAP net income $35,005 $39,968 $72,466 $72,417
 
Provision for income taxes 16,473 14,963 34,102 29,542
 
GAAP income before provision for income taxes $51,478 $54,931 $106,568 $101,959
 
Add: Non-cash share-based compensation expense 23,859 18,753 46,065 34,940
Add: Amortization of intangible assets 5,409 5,196 10,257 10,137
Add: Facility exit costs - - 3,142 -
 
Non-GAAP adjusted income before provision for income taxes $80,746 $78,880 $166,032 $147,036
 
Provision for income taxes (1) 25,839 22,387 53,130 43,515
 
Non-GAAP adjusted net income (basic and diluted) $54,907 $56,493 $112,902 $103,521
 
Non-GAAP adjusted net income per share:
Basic $0.28 $0.29 $0.58 $0.54
Diluted $0.28 $0.29 $0.58 $0.53
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $80,746 $78,880 $166,032 $147,036
Estimated annual effective tax rate 32.0% 31.0% 32.0% 31.0%
Non-GAAP provision for income taxes before discrete tax benefit $25,839 $24,453 $53,130 $45,581
Discrete tax benefit - 2,066 - 2,066
Provision for income taxes on Non-GAAP adjusted net income $25,839 $22,387 $53,130 $43,515
 

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,
2012 2011 2012 2011
 
GAAP gross profit $274,737 $234,681 $543,449 $456,980
 
Add: Non-cash share-based compensation expense 2,167 1,842 4,333 3,631
Add: Amortization of intangible assets 1,149 1,216 1,819 2,195
 
Non-GAAP gross profit $278,053 $237,739 $549,601 $462,806
 
Non-GAAP gross margin 86% 85% 86% 85%
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2012 2011 2012 2011
 
GAAP operating expenses $224,757 $182,203 $442,561 $359,143
 
Deduct: Non-cash share-based compensation expense (21,692) (16,911) (41,732) (31,309)
Deduct: Amortization of intangible assets (4,260) (3,980) (8,438) (7,942)
Deduct: Facility exit costs

-

-

(3,142)

-

 
Non-GAAP adjusted operating expenses $198,805 $161,312 $389,249 $319,892
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2012 2011 2012 2011
 
GAAP operating income $49,980 $52,478 $100,888 $97,837
 
Add: Non-cash share-based compensation expense 23,859 18,753 46,065 34,940
Add: Amortization of intangible assets 5,409 5,196 10,257 10,137
Add: Facility exit costs - - 3,142 -
 
Non-GAAP adjusted operating income $79,248 $76,427 $160,352 $142,914
 
Non-GAAP adjusted operating margin 24.6% 27.2% 25.2% 26.2%
 
 
Three Months Ended  
August 31, August 31, Year-Over-Year
2012 2011 Growth Rate
 
GAAP subscription revenue $278,800 $238,337 17.0%
Adjustment for currency impact 12,248 -
Non-GAAP subscription revenue on a constant currency basis $291,048 $238,337 22.1%
 
GAAP training and services revenue $43,795 $42,983 1.9%
Adjustment for currency impact 1,985 -
Non-GAAP training and services revenue on a constant currency basis $45,780 $42,983 6.5%
 
GAAP total subscription, training and services revenue $322,595 $281,320 14.7%
Adjustment for currency impact 14,233 -
Non-GAAP total subscription, training and services revenue on a constant currency basis $336,828 $281,320 19.7%

Contacts

Red Hat Inc.
Media Contact:
Stephanie Wonderlick, +1 571-421-8169
swonderlick@redhat.com
or
Investor Relations:
Tom McCallum, +1 919-754-4630
tmccallum@redhat.com

Release Summary

Q2 FY13 Earnings

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Contacts

Red Hat Inc.
Media Contact:
Stephanie Wonderlick, +1 571-421-8169
swonderlick@redhat.com
or
Investor Relations:
Tom McCallum, +1 919-754-4630
tmccallum@redhat.com