Red Hat Reports Second Quarter Results

  • Revenue of $220 million, up 20% from the prior year
  • GAAP operating income up 24%, non-GAAP operating income up 25% from the prior year
  • Deferred revenue of $650 million, up 12% from the prior 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 2011 second quarter ended August 31, 2010.

Total revenue for the quarter was $219.8 million, an increase of 20% from the year ago quarter. Subscription revenue for the quarter was $186.2 million, up 19% year-over-year.

“We continued to benefit from new project spending, expansion and cross selling of our product solutions and strong renewals in our top accounts. Our sales execution in the quarter resulted in organic revenue growth of 20% and the best billings growth rate in two years,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “During the quarter, we introduced our Cloud Foundations portfolio in an effort to help our customers take advantage of the benefits from cloud computing in an open and cost effective way. Our flexible cloud stack will enable customers to run enterprise applications across physical servers, virtual platforms, private clouds and multiple public clouds. We are beginning to see solid interest in our cloud and virtualization initiatives as well as some early deal activity, including our first private cloud management deal over a million dollars.”

GAAP operating income for the second quarter was $34.1 million, up 24% year-over-year. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the second quarter was $54.3 million, up 25% year-over-year.

Net income for the quarter was $23.7 million, or $0.12 per diluted share, compared with $28.9 million, or $0.15 per diluted share, in the year ago quarter which included a one time tax benefit of $7.3 million, or approximately $0.04 per diluted share. Non-GAAP net income for the quarter was $36.8 million, or $0.19 per diluted share, after adjusting for stock compensation and amortization expenses as detailed in the tables below, as compared to $39.4 million, or $0.20 per diluted share, in the year ago quarter which also included the one time tax benefit of $7.3 million, or approximately $0.04 per diluted share.

Operating cash flow totaled $64.3 million, as compared to $62.0 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $649.6 million, an increase of 12% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2010 was $1.05 billion.

“Our revenue and operating income growth continued this quarter with strong double digit gains in both, despite the foreign currency head wind,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “Our performance was broad based with strong results across all geographic regions and routes to market. It is clear that our value proposition is resonating with customers.”

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 six 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 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.

© 2010 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 Six Months Ended
August 31, August 31, August 31,

August 31,

2010   2009 2010   2009
Revenue:
 
Subscriptions $186,183 $156,273 $365,259 $305,063
Training and services   33,578   27,360   63,646   52,958
 
Total subscription, training and services revenue   219,761   183,633   428,905   358,021
 
Cost of revenue:
 
Subscriptions   12,256   10,972   24,920 21,023
Training and services   23,446   17,468   44,019   33,886
 
Total cost of subscription, training and services revenue   35,702   28,440   68,939   54,909
 
Total gross profit 184,059 155,193 359,966 303,112
 
Operating expense:
Sales and marketing 79,434 66,768 153,998 130,745
Research and development 42,361 36,360 83,019 71,462
General and administrative   28,193   24,523   54,638   48,308
 
Total operating expense   149,988   127,651   291,655   250,515
 
Income from operations 34,071 27,542 68,311 52,597
Interest income 1,775 2,524 3,438 5,955
Other income, net   548   3,192   1,677   3,189
 
Income before provision for income taxes 36,394 33,258 73,426 61,741
Provision for income taxes   12,738   4,321   25,699   14,290
 
Net income $23,656 $28,937 $47,727 $47,451
 
Net income-diluted $23,656 $28,937 $47,727 $47,451
 
Net income per share:
Basic $0.13 $0.15 $0.25 $0.25
Diluted $0.12 $0.15 $0.25 $0.25
 
Weighted average shares outstanding:
Basic 189,027 187,099 188,477 188,007
Diluted 193,560 192,659 193,457 193,060

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
               
ASSETS
August 31, February 28,
2010 2010
(Unaudited)
Current assets:
Cash and cash equivalents $669,227 $388,118
Investments in debt and equity securities 305,991 372,656
Accounts receivable, net 125,993 139,436
Deferred tax assets, net 68,618 57,951
Prepaid expenses 48,076 44,116
Other current assets 1,929 842
 
Total current assets 1,219,834 1,003,119
 
Property and equipment, net 71,544 71,708
Goodwill 438,376 438,749
Identifiable intangibles, net 101,412 108,213
Investments in debt securities 74,933 209,411
Other assets, net 37,496 39,672
 
Total assets $1,943,595 $1,870,872
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,368 $16,483
Accrued expenses 70,267 68,334
Deferred revenue 483,477 480,572
Other current obligations 530 878
 
Total current liabilities 567,642 566,267
 
Deferred lease credits 4,257 4,184
Long term deferred revenue 166,158 165,288
Other long term obligations 23,546 24,081
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 1,552,830 1,444,848
Retained earnings 185,499 137,772
Treasury stock, at cost (552,002) (472,646)
Accumulated other comprehensive (loss) income (4,357) 1,056
 
Total stockholders' equity 1,181,992 1,111,052
 
Total liabilities and stockholders' equity $1,943,595 $1,870,872

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,
2010   2009 2010   2009
 
Cash flows from operating activities:
Net income $23,656 $28,937 $47,727 $47,451

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

Depreciation and amortization 11,689 11,442 23,411 22,252
Share-based compensation expense 15,675 11,013 28,849 21,689
Deferred income taxes 13,434 (940) 21,786 5,489
Excess tax benefits from share-based payment arrangements (10,192) (3,556) (21,199) (17,756)
Gain on sale of available-for-sale equity securities (601) (3,465) (1,117) (3,663)
Other 319 (80) 116 (6)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (6,794) (5,666) 12,732 20,612
Prepaid assets (4,153) 2,945 (4,744) 3,371
Accounts payable 2,187 4,790 (2,882) 7,788
Accrued expenses 6,712 5,214 8,252 2,185
Deferred revenue 13,439 10,155 12,381 12,516
Other (1,087) 1,216 (384) 1,280
 
Net cash provided by operating activities 64,284 62,005 124,928 123,208
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (110,021) (131,437) (220,364) (288,472)
Proceeds from sales and maturities of available-for-sale debt securities 215,811 83,655 414,129 206,104
Proceeds from sales of available-for-sale equity securities 609 3,838 1,157 4,059
Purchase of developed technologies and other intangible assets (1,324) (1,081) (2,945) (2,070)
Purchase of property and equipment (8,371) (6,635) (15,093) (12,662)
 
Net cash provided by (used in) investing activities 96,704 (51,660) 176,884 (93,041)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 10,192 3,556 21,199 17,756
Proceeds from exercise of common stock options 18,011 14,189 55,699 18,589
Purchase of treasury stock (4,994) (47,186) (79,355) (93,957)
Payments related to net settlement of employee share-based compensation awards (1,135) (502) (8,190) (2,300)
Payments on other borrowings - - (877) (900)
 
Net cash provided by (used in) financing activities 22,074 (29,943) (11,524) (60,812)
 
Effect of foreign currency exchange rates on cash and cash equivalents 7,795 2,034 (9,179) 8,149
Net increase (decrease) in cash and cash equivalents 190,857 (17,564) 281,109 (22,496)
Cash and cash equivalents at beginning of the period 478,370 510,616 388,118 515,548
 
Cash and cash equivalents at end of period $669,227 $493,052 $669,227 $493,052

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,
2010 2009 2010 2009
 
Cost of revenue $1,370 $759 $2,561 $1,560
Sales and marketing 4,771 3,138 8,547 6,248
Research and development 4,080 3,075 7,435 6,348
General and administration 5,454 4,041 10,306 7,533
Total share-based compensation expense $15,675 $11,013 $28,849 $21,689
 
 
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,
2010 2009 2010 2009
 
Cost of revenue $704 $989 $1,408 $1,949
Sales and marketing 2,075 2,293 4,161 4,615
Research and development 925 925 1,850 1,851
General and administration 833 804 1,655 1,601
Total amortization of intangible assets expense $4,537 $5,011 $9,074 $10,016
 
 
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2010 2009 2010 2009
 
GAAP net income $23,656 $28,937 $47,727 $47,451
 
Provision for income taxes 12,738 4,321 25,699 14,290
 
GAAP income before provision for income taxes $36,394 $33,258 $73,426 $61,741
 

Add: Non-cash share-based compensation expense

15,675 11,013 28,849 21,689
Add: Amortization of intangible assets 4,537 5,011 9,074 10,016
 
Non-GAAP adjusted income before provision for income taxes $56,606 $49,282 $111,349 $93,446
 
Provision for income taxes (1) 19,812 9,930 38,972 25,387
 
Non-GAAP adjusted net income $36,794 $39,352 $72,377 $68,059
 
Non-GAAP adjusted net income-diluted $36,794 $39,352 $72,377 $68,059
 
Non-GAAP adjusted net income per share:
Basic $0.19 $0.21 $0.38 $0.36
Diluted $0.19 $0.20 $0.37 $0.35
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $56,606 $49,282 $111,349 $93,446
Estimated annual effective tax rate 35% 35% 35% 35%
Non-GAAP provision for income taxes before discrete tax benefit $19,812 $17,249 $38,972 $32,706
Discrete tax benefit - 7,319 - 7,319
Provision for income taxes on Non-GAAP adjusted net income $19,812 $9,930 $38,972 $25,387

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,
2010 2009 2010 2009
 
GAAP gross profit $184,059 $155,193 $359,966 $303,112
 

Add: Non-cash share-based compensation expense

1,370 759 2,561 1,560
Add: Amortization of intangible assets 704 989 1,408 1,949
 
Non-GAAP gross profit $186,133 $156,941 $363,935 $306,621
 
Non-GAAP gross margin 85% 85% 85% 86%
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2010 2009 2010 2009
 
GAAP operating expenses $149,988 $127,651 $291,655 $250,515
 

Deduct: Non-cash share-based compensation expense

(14,305) (10,254) (26,288) (20,129)
Deduct: Amortization of intangible assets (3,833) (4,022) (7,666) (8,067)
 
Non-GAAP adjusted operating expenses $131,850 $113,375 $257,701 $222,319
 
 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2010 2009 2010 2009
 
GAAP operating income $34,071 $27,542 $68,311 $52,597
 

Add: Non-cash share-based compensation expense

15,675 11,013 28,849 21,689
Add: Amortization of intangible assets 4,537 5,011 9,074 10,016
 
Non-GAAP adjusted operating income $54,283 $43,566 $106,234 $84,302
 
Non-GAAP adjusted operating margin 24.7% 23.7% 24.8% 23.5%

Contacts

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

Contacts

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