Red Hat Reports First Quarter Results
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RALEIGH, N.C.--(BUSINESS WIRE)--
Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2009 first quarter ended May 31, 2008.
"The first quarter was a solid start to the fiscal year," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "With our recognized value advantage and award winning technology solutions, we continued to see top enterprise customers expand Red Hat deployments and new customers migrate to our solutions."
Total revenue for the quarter was $156.6 million, an increase of 32% from the year ago quarter and 11% from the prior quarter. Subscription revenue for the quarter was $130.7 million, up 27% year-over-year and 7% sequentially.
Net income for the quarter was $17.3 million, or $0.08 per diluted share, compared with $16.2 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $37.0 million, or $0.18 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 year ago quarter.
Operating cash flow totaled $63.4 million, compared to $39.7 million from the year ago quarter and $54.5 million from the prior quarter. At quarter end, the company's total deferred revenue balance was $491.8 million, an increase of 36% on a year-over-year basis and 4% sequentially. Total cash, cash equivalents and investments as of May 31, 2008 were $1.35 billion.
Other highlights include the following:
-- Red Hat launched major releases of its flagship products; Red
Hat Network Satellite 5.1, Red Hat Enterprise Linux 5.2, and
JBoss Operations Network 2.0. Also Red Hat released Fedora 9
to the open source community.
-- Red Hat's middleware business continued to gain momentum in
the quarter. JBoss middleware solutions were positioned in the
Leadership quadrant of Gartner Inc.'s "Magic Quadrant for
Enterprise Application Servers" for a third consecutive year.
JBoss also received high marks in a survey of application
development professionals published by Forrester Research on
April 25, 2008 "Application Server Quality: Review Your
Assumptions".
-- Red Hat was named the #1 IT vendor in Japan by IT workers
surveyed in the Nikkei Access' April 2008 study for the second
consecutive year.
"Our execution this quarter enabled us to deliver a combination of strong revenue, operating income and cash flow growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We achieved these results while continuing to invest in our infrastructure and technologies to enable future growth."
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 55 offices spanning the globe. CIOs have 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 the JBoss Enterprise Middleware Suite. Red Hat also offers support, training and consulting services to its customers worldwide. Learn more: 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 Annual Report on Form 10-K (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.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended
-------------------
May 31, May 31,
2008 2007
--------- ---------
Revenue:
Subscriptions $130,694 $103,045
Training and services 25,941 15,828
--------- ---------
Total subscription, training and services
revenue 156,635 118,873
--------- ---------
Cost of revenue:
Subscriptions 8,957 7,601
Training and services 17,472 10,663
--------- ---------
Total cost of subscription, training and
services revenue 26,429 18,264
--------- ---------
Total gross profit 130,206 100,609
Operating expense:
Sales and marketing 59,271 46,209
Research and development 28,911 21,787
General and administrative 22,114 17,661
--------- ---------
Total operating expense 110,296 85,657
--------- ---------
Income from operations 19,910 14,952
Other income, net 10,020 13,578
Interest expense (1,586) (1,495)
--------- ---------
Income before provision for income taxes 28,344 27,035
Provision for income taxes 11,054 10,814
--------- ---------
Net income $ 17,290 $ 16,221
========= =========
Net income-diluted $ 18,184 $ 17,100
========= =========
Net income per share:
Basic $ 0.09 $ 0.08
Diluted $ 0.08 $ 0.08
Weighted average shares outstanding:
Basic 190,779 193,082
Diluted 218,853 221,407
Diluted net income per share computation:
GAAP Net income, basic $ 17,290 $ 16,221
Interest expense on convertible debentures, net of
related GAAP tax effects 435 428
Amortization of debt issuance costs, net of related
GAAP tax effects 459 451
--------- ---------
GAAP Net income, diluted $ 18,184 $ 17,100
========= =========
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
May 31, February 29,
2008 2008
----------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 610,540 $ 677,720
Investments in debt securities 285,535 312,442
Accounts receivable, net 114,975 127,002
Prepaid expenses and other current assets 85,708 75,192
----------- ------------
Total current assets 1,096,758 1,192,356
Property and equipment, net 73,341 68,557
Goodwill 358,335 340,314
Identifiable intangibles, net 112,832 93,823
Investments in debt securities 453,073 341,781
Other assets, net 43,007 43,151
----------- ------------
Total assets $2,137,346 $2,079,982
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,932 $ 17,341
Accrued expenses 46,993 43,260
Deferred revenue 351,242 339,088
Convertible debentures 570,000 570,000
Other current obligations 1,001 59
----------- ------------
Total current liabilities 981,168 969,748
Deferred lease credits 4,844 4,977
Long term deferred revenue 140,582 133,805
Other long term obligations 19,359 20,261
Convertible debentures - -
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 1,208,585 1,170,328
Accumulated deficit (10,912) (28,202)
Treasury stock, at cost (202,093) (192,946)
Accumulated other comprehensive income
(loss) (4,208) 1,990
----------- ------------
Total stockholders' equity 991,393 951,191
----------- ------------
Total liabilities and stockholders'
equity $2,137,346 $2,079,982
=========== ============
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
---------------------
May 31, May 31,
2008 2007
---------- ----------
Cash flows from operating activities:
Net income $ 17,290 $ 16,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,097 7,234
Deferred income taxes 8,767 8,330
Share-based compensation expense 10,561 8,386
Excess tax benefits from share-based payment
arrangements (8,967) (12,610)
Provision for doubtful accounts (151) 582
Amortization of debt issuance costs 752 752
Other (40) -
Changes in operating assets and liabilities net
of effects of acquisitions:
Accounts receivable and earnings in excess of
billings 19,320 (3,917)
Prepaid expenses and other current assets (5,003) (738)
Accounts payable (5,570) (4,223)
Accrued expenses 1,986 (1,764)
Deferred revenue 15,454 21,564
Other assets (134) (92)
-------- --------
Net cash provided by operating activities 63,362 39,725
---------- ----------
Cash flows from investing activities:
Purchase of investment securities (305,646) (341,175)
Proceeds from sales and maturities of
investment securities 216,534 215,480
Acquisitions of businesses, net of cash
acquired (43,750) (11,784)
Purchase of property and equipment (9,522) (6,407)
Purchase of developed software and other
intangible assets (1,615) (3,488)
---------- ----------
Net cash used in investing activities (143,999) (147,374)
---------- ----------
Cash flows from financing activities:
Excess tax benefits from share-based payment
arrangements 8,967 12,610
Proceeds from exercise of common stock
options 11,447 3,074
Purchase of treasury stock (9,147) -
Structured stock repurchase 1,989 -
Other borrowings, net 43 2,232
---------- ----------
Net cash provided by financing activities 13,299 17,916
---------- ----------
Effect of foreign currency exchange rates on
cash and cash equivalents 158 (122)
Net decrease in cash and cash equivalents (67,180) (89,855)
Cash and cash equivalents at beginning of the
period 677,720 527,239
---------- ----------
Cash and cash equivalents at end of period $ 610,540 $ 437,384
========== ==========
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
------------------
May 31, May 31,
2008 2007
------------------
Cost of revenue $ 681 $ 582
Sales and marketing 3,996 2,514
Research and development 2,508 2,125
General and administration 3,376 3,165
---------- -------
Total stock based compensation expense $10,561 $ 8,386
========== =======
Reconciliation of GAAP results to non-GAAP
adjusted results
Three Months Ended
------------------
May 31, May 31,
2008 2007
------------------
GAAP net income $17,290 $16,221
GAAP provision for income taxes 11,054 10,814
------ ------
GAAP income before provision for income taxes $28,344 $27,035
Add: Non-cash share-based compensation expense
per FAS 123R 10,561 8,386
------ ------
Non-GAAP adjusted income before provision for
income taxes $38,905 $35,421
Non-GAAP cash provision for income taxes $ 1,945 $ 1,771
---------- -------
Non-GAAP adjusted net income $36,960 $33,650
========== =======
Non-GAAP adjusted net income-diluted $38,352 $35,042
========== =======
Non-GAAP adjusted net income per share:
Basic $ 0.19 $ 0.17
Diluted $ 0.18 $ 0.16
Non-GAAP diluted net income per share
computation:
Non-GAAP adjusted net income $36,960 $33,650
Interest expense on convertible debentures, net
of related 5% cash tax effects 677 677
Amortization of debt issuance costs, net of
related 5% cash tax effects 715 715
------ ------
Non-GAAP adjusted net income-diluted $38,352 $35,042
========== =======
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
-------------------
May 31, May 31,
2008 2007
--------- ---------
GAAP Gross profit $130,206 $100,609
Add: Non-cash share-based compensation expense per
FAS 123R 681 582
--------- ---------
Non-GAAP gross profit $130,887 $101,191
--------- ---------
Non-GAAP gross margin 84% 85%
Three Months Ended
-------------------
May 31, May 31,
2008 2007
--------- ---------
GAAP operating expenses $110,296 $ 85,657
Deduct: Non-cash share-based compensation expense
per FAS 123R (9,880) (7,804)
--------- ---------
Non-GAAP adjusted operating expenses $100,416 $ 77,853
--------- ---------
Three Months Ended
-------------------
May 31, May 31,
2008 2007
--------- ---------
GAAP operating income $ 19,910 $ 14,952
Add: Non-cash share-based compensation expense per
FAS 123R 10,561 8,386
--------- ---------
Non-GAAP adjusted operating income $ 30,471 $ 23,338
--------- ---------
Non-GAAP adjusted operating margin 19.5% 19.6%
Source: Red Hat, Inc.
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