Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its second fiscal quarter ended August 31, 2007. Red Hat's current fiscal year will end February 29, 2008.
Total revenue for the quarter was $127.3 million, an increase of 28% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $109.2 million, up 29% year-over-year and 6% sequentially.
Net income for the quarter was $18.2 million, or $0.09 per diluted share, compared with $16.2 million, or $0.08 per diluted share, for the prior quarter and $11.0 million, or $0.05 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $36.9 million, or $0.17 per diluted share, after adjusting for stock compensation and tax expense as detailed in the tables below. This compares to non-GAAP adjusted net income of $33.7 million, or $0.16 per diluted share, in the prior quarter and $24.5 million, or $0.12 per diluted share, in the year ago period.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $63.7 million for the quarter, up 43% from the year ago quarter and 22% sequentially. Total cash, cash equivalents and investments as of August 31, 2007 were $1.3 billion. At quarter end, Red Hat's total deferred revenue balance was $377.0 million, an increase of 33% year-over-year and 4% sequentially.
Other highlights of the quarter included the following:
- Red Hat continued to build its industry leading ecosystem by surpassing the milestone of more than 3,000 applications certified on Red Hat Enterprise Linux.
- Following three consecutive years of Red Hat being ranked first in value for enterprise software in the CIO Insight survey, Red Hat Japan was ranked the number one technology vendor in Japan that customers intend to conduct business with in the future according to the Nikkei Market Access survey.
- Red Hat released the beta version of the Red Hat Developer Studio, an integrated Eclipse-based set of open source development tools and runtime environment.
Red Hat released JBoss Enterprise Application Platform 4.2, an enterprise-ready platform on which to migrate legacy applications to an open source architecture.
We are pleased to report another solid quarter of strong revenues. I am particularly pleased with the steady improvement in operating margin and operating cash flow. These performance improvements come at a time when we are continuing to invest heavily in our processes and systems as we scale globally,
stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. We continue to see robust demand for our open source solutions and are encouraged by our market position.
In addition, Red Hat today announced that its Board of Directors had authorized the continuation of the Company's stock and debenture repurchase program. Under the program, the Company is authorized to repurchase in aggregate up to $250 million of the Company's common stock and in aggregate up to $75 million of the Company's 0.5% Convertible Senior Debentures due 2024.
Repurchases of common stock and debentures may be effected, from time to time, either on the open market or in privately negotiated transactions, as applicable. The timing and the amount of any repurchases of common stock and debentures will be determined by the Company's management based on an evaluation of market conditions and other factors. Repurchased common stock will be available for use in connection with the Company's equity compensation plans and for other corporate purposes. Repurchased debentures will be retired and canceled. The repurchase program will be funded using the Company's working capital and may be suspended or discontinued at any time. Red Hat had approximately 193.9 million shares of common stock outstanding as of September 21, 2007.
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 50 offices spanning the globe. CIOs have ranked Red Hat first for value in Enterprise Software for three consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat provides high-quality, low-cost technology with its operating system platform, Red Hat Enterprise Linux, together with applications, management and Services Oriented Architecture (SOA) solutions, including the JBoss Enterprise Middleware Suite. 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 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, 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 Six Months Ended
------------------- -------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
------------------- -------------------
Revenue:
Subscriptions $109,172 $ 84,947 $212,217 $156,439
Training and services 18,098 14,726 33,926 27,237
--------- --------- --------- ---------
Total subscription,
training and services
revenue 127,270 99,673 246,143 183,676
--------- --------- --------- ---------
Cost of revenue:
Subscriptions 8,492 7,386 16,093 13,382
Training and services 11,572 9,034 22,235 16,484
--------- --------- --------- ---------
Total cost of subscription,
training and services
revenue 20,064 16,420 38,328 29,866
--------- --------- --------- ---------
Total gross profit 107,206 83,253 207,815 153,810
Operating expense:
Sales and marketing 46,093 37,807 92,302 68,308
Research and development 23,384 18,068 45,171 31,883
General and administrative 19,933 17,926 37,594 31,555
--------- --------- --------- ---------
Total operating expense 89,410 73,801 175,067 131,746
--------- --------- --------- ---------
Income from operations 17,796 9,452 32,748 22,064
Other income, net 14,030 9,573 27,608 20,275
Interest expense (1,565) (1,490) (3,060) (2,974)
--------- --------- --------- ---------
Income before provision
(benefit) for income taxes 30,261 17,535 57,296 39,365
Provision (benefit) for income
taxes 12,104 6,488 22,918 14,565
--------- --------- --------- ---------
Net income $ 18,157 $ 11,047 $ 34,378 $ 24,800
========= ========= ========= =========
Net income-diluted $ 19,050 $ 12,000 $ 36,165 $ 26,705
========= ========= ========= =========
Net income per share:
Basic $ 0.09 $ 0.06 $ 0.18 $ 0.13
Diluted $ 0.09 $ 0.05 $ 0.16 $ 0.12
Weighted average shares
outstanding:
Basic 193,634 190,292 193,358 186,936
Diluted 221,688 219,940 221,559 217,348
Diluted net income per share
computation:
GAAP Net income, basic $ 18,157 $ 11,047 $ 34,378 $ 24,800
Interest expense on convertible
debentures, net of related
GAAP tax effects 435 464 869 927
Amortization of debt issuance
costs, net of related GAAP tax
effects 458 489 918 978
GAAP Net income, diluted $ 19,050 $ 12,000 $ 36,165 $ 26,705
========= ========= ========= =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Aug. 31, Feb. 28,
2007 2007
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 524,619 $ 527,239
Investments in debt securities 353,764 350,827
Accounts receivable, net 89,125 87,973
Prepaid expenses and other current assets 57,862 41,026
----------- -----------
Total current assets 1,025,370 1,007,065
Property and equipment, net 51,363 45,258
Goodwill 339,357 328,837
Identifiable intangibles, net 97,477 94,314
Investments in debt securities 375,263 278,028
Other assets, net 32,945 32,352
----------- -----------
Total assets $1,921,775 $1,785,854
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,085 $ 12,062
Accrued expenses 37,622 38,472
Deferred revenue 278,361 249,615
Other current obligations 24 214
----------- -----------
Total current liabilities 326,092 300,363
Deferred lease credits 5,042 5,235
Long term deferred revenue 98,673 89,020
Other long term obligations 23,430 -
Convertible debentures 570,000 570,000
Stockholders' equity:
Common stock 20 20
Additional paid-in capital 1,096,394 1,040,892
Accumulated deficit (70,491) (92,092)
Treasury stock, at cost (125,924) (125,789)
Accumulated other comprehensive loss (1,461) (1,795)
----------- -----------
Total stockholders' equity 898,538 821,236
----------- -----------
Total liabilities and stockholders' equity $1,921,775 $1,785,854
=========== ===========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
--------------------- ---------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
--------------------- ---------------------
Cash flows from operating
activities:
Net income $ 18,157 $ 11,047 $ 34,378 $ 24,800
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 8,219 6,754 15,453 11,098
Deferred income taxes 9,884 4,092 18,214 9,502
Share-based compensation
expense 8,581 8,300 16,967 15,926
Excess tax benefits from
share-based payment
arrangements (14,509) (740) (27,119) (2,875)
Provision for doubtful
accounts (195) 201 387 702
Amortization of debt
issuance costs 752 752 1,505 1,504
Other 156 (12) 156 (289)
Changes in operating assets
and liabilities net of
effects of acquisitions:
Accounts receivable and
earnings in excess of
billings 4,162 3,311 245 (181)
Prepaid expenses and
other current assets 736 (1,115) - (2,415)
Accounts payable 2,116 399 (2,107) 509
Accrued expenses (617) (1,707) (2,382) (157)
Deferred revenue 11,858 12,623 33,421 38,079
Other assets (99) (21) (193) 53
Net cash provided by
operating activities 49,201 43,884 88,925 96,256
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investment
securities (167,415) (112) (508,590) (7,444)
Proceeds from sales and
maturities of investment
securities 193,478 78,021 408,958 356,052
Acquisitions of
businesses, net of cash
acquired - (147,651) (11,784) (149,562)
Purchase of property and
equipment (8,375) (5,107) (14,782) (8,985)
Purchase of developed
software and other
intangibles assets (865) - (4,352) -
---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities 16,823 (74,849) (130,550) 190,061
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Excess tax benefits from
share-based payment
arrangements 14,509 740 27,119 2,875
Net proceeds from issuance
of common stock under
Employee Stock Purchase
Plan - - - 306
Proceeds from exercise of
common stock options 5,455 4,354 8,530 11,684
Purchase of treasury stock (136) (1,359) (136) (1,532)
Proceeds from other
borrowings - - 2,898 -
Payments on other
borrowings (90) (31) (757) (31)
---------- ---------- ---------- ----------
Net cash provided by
financing activities 19,738 3,704 37,654 13,302
---------- ---------- ---------- ----------
Effect of foreign currency
exchange rates on cash and
cash equivalents 1,473 (1,475) 1,351 1,015
Net increase (decrease) in
cash and cash equivalents 87,235 (28,736) (2,620) 300,634
Cash and cash equivalents
at beginning of the period 437,384 596,917 527,239 267,547
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 524,619 $ 568,181 $ 524,619 $ 568,181
========== ========== ========== ==========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
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 Six Months
Ended Ended
----------------- -----------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
----------------- -----------------
Cost of revenue $ 570 $ 539 $ 1,152 $ 1,049
Sales and marketing 2,437 2,455 4,951 4,572
Research and development 2,118 1,771 4,243 3,268
General and administration 3,456 3,535 6,621 7,037
-------- -------- -------- --------
Total stock based compensation
expense $ 8,581 $ 8,300 $ 16,967 $15,926
======== ======== ======== ========
Reconciliation of GAAP results to non-GAAP
adjusted results
Three Months Six Months
Ended Ended
----------------- -----------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
----------------- -----------------
GAAP net income $18,157 $11,047 $ 34,378 $24,800
GAAP provision for income taxes 12,104 6,488 22,918 14,565
GAAP income before provision for
income taxes $30,261 $17,535 $ 57,296 $39,365
Add: Share-based compensation per
FAS 123R 8,581 8,300 16,967 15,926
Non-GAAP adjusted income before
provision for income taxes $38,842 $25,835 $ 74,263 $55,291
Non-GAAP cash provision for income
taxes $ 1,942 $ 1,292 $ 3,713 $ 2,765
-------- -------- -------- --------
Non-GAAP adjusted net income $36,900 $24,543 $ 70,550 $52,526
======== ======== ======== ========
Non-GAAP adjusted net income-
diluted $38,292 $25,935 $ 73,334 $55,310
======== ======== ======== ========
Non-GAAP adjusted net income per
share:
Basic $ 0.19 $ 0.13 $ 0.36 $ 0.28
Diluted $ 0.17 $ 0.12 $ 0.33 $ 0.25
Non-GAAP diluted net income per
share computation:
Non-GAAP adjusted net income $36,900 $24,543 $ 70,550 $52,526
Interest expense on convertible
debentures, net of related 5% cash
tax effects 677 677 1,354 1,354
Amortization of debt issuance
costs, net of related 5% cash tax
effects 715 715 1,430 1,430
Non-GAAP adjusted net income-
diluted $38,292 $25,935 $ 73,334 $55,310
======== ======== ======== ========
Reconciliation of GAAP cash flows from operating activities to non-
GAAP adjusted cash flows from operating activities
Three Months Six Months
Ended Ended
----------------- -----------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
----------------- -----------------
GAAP net cash provided by operating
activities $49,201 $43,884 $ 88,925 $96,256
Add: Excess tax benefits from
share-based payment arrangements 14,509 740 27,119 2,875
Non-GAAP net cash provided by
operating activities $63,710 $44,624 $116,044 $99,131
======== ======== ======== ========
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 Six Months Ended
------------------ -------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
------------------ -------------------
GAAP Gross profit $107,206 $83,253 $207,815 $153,810
Add: Non-cash share-based
compensation per FAS 123R 570 539 1,152 1,049
Non-GAAP gross profit $107,776 $83,792 $208,967 $154,859
Non-GAAP gross margin 85% 84% 85% 84%
Three Months Ended Six Months Ended
------------------ -------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
------------------ -------------------
GAAP operating expenses $ 89,410 $73,801 $175,067 $131,746
Deduct: Non-cash share-based
compensation per FAS 123R (8,011) (7,761) (15,815) (14,877)
Non-GAAP adjusted operating
expenses $ 81,399 $66,040 $159,252 $116,869
Three Months Ended Six Months Ended
------------------ -------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
2007 2006 2007 2006
------------------ -------------------
GAAP operating income $ 17,796 $ 9,452 $ 32,748 $ 22,064
Add: Non-cash share-based
compensation per FAS 123R 8,581 8,300 16,967 15,926
Non-GAAP adjusted operating
income $ 26,377 $17,752 $ 49,715 $ 37,990
Non-GAAP adjusted operating
margin 20.7% 17.8% 20.2% 20.7%
CONTACT: Red Hat, Inc.
Kerrin Catallozzi, 919-754-4268
Corporate Communications
kcatallo@redhat.com
or
Linda Brewton, 919-754-4476
Investor Relations
lbrewton@redhat.com
SOURCE: Red Hat, Inc.
- About Red Hat
Red Hat is the world’s leading provider of open source software solutions, using 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; the integration of acquisitions and the ability to market successfully acquired technologies and products; uncertainty and adverse results in litigation and related settlements; 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.
