Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal quarter ended May 31, 2007. Red Hat's current fiscal year will end February 29, 2008.
Total revenue for the quarter was $118.9 million, an increase of 42% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $103.0 million, up 44% year-over-year and 7% sequentially.
Net income for the quarter was $16.2 million, or $0.08 per diluted share, compared with $13.8 million, or $0.07 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $33.7 million, or $0.16 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 $28.0 million, or $0.14 per diluted share, in the year ago period.
Non-GAAP operating cash flow, as detailed in the tables below, totaled $52.3 million for the quarter. Total cash, cash equivalents, and investments as of May 31, 2007 were $1.2 billion. At quarter end, Red Hat's total deferred revenue balance was $363.1 million, an increase of 43% year-over-year and 7% sequentially.
Other highlights of the quarter included the following:
- Red Hat held its third annual Summit for customers, partners and the community.
- Red Hat launched version 5 of its flagship Red Hat Enterprise Linux operating system.
- Red Hat debuted its Service Oriented Architecture strategy, including the addition of data management solutions and establishing developer class and enterprise class editions of the JBoss solution set.
"We started the quarter in high gear with the release of Red Hat Enterprise Linux 5 and followed with important launches for JBoss and our middleware strategy,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “We are pleased with our solid earnings performance as we executed on initiatives to continually garner market share and mind share in a rapidly growing market. Our investments in sales, marketing and R&D during the quarter set a solid foundation for the balance of the year."
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: 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 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, 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 | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| Revenue: | |||||||||||||||
| Subscriptions | $ | 103,045 | $ | 71,492 | |||||||||||
| Training and services | 15,828 | 12,510 | |||||||||||||
| Total subscription, training and services revenue | 118,873 | 84,002 | |||||||||||||
| Cost of revenue: | |||||||||||||||
| Subscriptions | 7,601 | 5,996 | |||||||||||||
| Training and services | 10,663 | 7,449 | |||||||||||||
| Total cost of subscription, training and services revenue | 18,264 | 13,445 | |||||||||||||
| Total gross profit | 100,609 | 70,557 | |||||||||||||
| Operating expense: | |||||||||||||||
| Sales and marketing | 46,209 | 30,501 | |||||||||||||
| Research and development | 21,787 | 13,815 | |||||||||||||
| General and administrative | 17,661 | 13,629 | |||||||||||||
| Total operating expense | 85,657 | 57,945 | |||||||||||||
| Income from operations | 14,952 | 12,612 | |||||||||||||
| Other income, net | 13,578 | 10,702 | |||||||||||||
| Interest expense | (1,495) | (1,484) | |||||||||||||
| Income before provision (benefit) for income taxes | 27,035 | 21,830 | |||||||||||||
| Provision (benefit) for income taxes | 10,814 | 8,077 | |||||||||||||
| Net income | $ | 16,221 | $ | 13,753 | |||||||||||
| Net income-diluted | $ | 17,100 | $ | 14,705 | |||||||||||
| Net income per share: | |||||||||||||||
| Basic | $ | 0.08 | $ | 0.07 | |||||||||||
| Diluted | $ | 0.08 | $ | 0.07 | |||||||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 193,082 | 183,579 | |||||||||||||
| Diluted | 221,407 | 214,325 | |||||||||||||
| Diluted net income per share computation: | |||||||||||||||
| GAAP Net income, basic | $ | 16,221 | $ | 13,753 | |||||||||||
| Interest expense on convertible debentures, net of related GAAP tax effects | 428 | 463 | |||||||||||||
| Amortization of debt issuance costs, net of related GAAP tax effects | 451 | 489 | |||||||||||||
| GAAP Net income, diluted | $ | 17,100 | $ | 14,705 | |||||||||||
| Note: certain prior year amounts have been reclassified to conform with current year presentation. | |||||||||||||||
| RED HAT, INC. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| May 31, | February 28, | ||||||||||
| 2007 | 2007 | ||||||||||
| (unaudited) | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 437,384 | $ | 527,239 | |||||||
| Investments in debt securities | 400,074 | 350,827 | |||||||||
| Accounts receivable, net | 92,412 | 87,973 | |||||||||
| Prepaid expenses and other current assets | 53,279 | 41,026 | |||||||||
| Total current assets | 983,149 | 1,007,065 | |||||||||
| Property and equipment, net | 47,713 | 45,258 | |||||||||
| Goodwill | 344,819 | 328,837 | |||||||||
| Identifiable intangibles, net | 95,477 | 94,314 | |||||||||
| Investments in debt securities | 353,626 | 278,028 | |||||||||
| Other assets, net | 32,824 | 32,352 | |||||||||
| Total assets | $ | 1,857,608 | $ | 1,785,854 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 7,958 | $ | 12,062 | |||||||
| Accrued expenses | 38,375 | 38,472 | |||||||||
| Deferred revenue | 264,651 | 249,615 | |||||||||
| Other current obligations | 345 | 214 | |||||||||
| Total current liabilities | 311,329 | 300,363 | |||||||||
| Deferred lease credits | 5,141 | 5,235 | |||||||||
| Long term deferred revenue | 98,407 | 89,020 | |||||||||
| Other long term obligations | 23,801 | - | |||||||||
| Convertible debentures | 570,000 | 570,000 | |||||||||
| Stockholders' equity: | |||||||||||
| Minority interest | - | - | |||||||||
| Common stock | 20 | 20 | |||||||||
| Additional paid-in capital | 1,066,091 | 1,040,892 | |||||||||
| Deferred compensation | - | - | |||||||||
| Accumulated deficit | (88,648) | (92,092) | |||||||||
| Treasury stock, at cost | (125,789) | (125,789) | |||||||||
| Accumulated other comprehensive loss | (2,744) | (1,795) | |||||||||
| Total stockholders' equity | 848,930 | 821,236 | |||||||||
| Total liabilities and stockholders' equity | $ | 1,857,608 | $ | 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 | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net income | $ | 16,221 | $ | 13,753 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
| Depreciation and amortization | 7,234 | 4,344 | |||||||||||||
| Deferred income taxes | 8,330 | 5,411 | |||||||||||||
| Share-based compensation expense | 8,386 | 7,626 | |||||||||||||
| Excess tax benefits from share-based payment arrangements | (12,610) | (2,135) | |||||||||||||
| Provision for doubtful accounts | 582 | 501 | |||||||||||||
| Amortization of debt issuance costs | 752 | 752 | |||||||||||||
| Other | - | (279) | |||||||||||||
| Changes in operating assets and liabilities net of effects of acquisitions: | |||||||||||||||
| Accounts receivable | (3,917) | (3,492) | |||||||||||||
| Prepaid expenses and other current assets | (738) | (1,299) | |||||||||||||
| Accounts payable | (4,223) | 109 | |||||||||||||
| Accrued expenses | (1,764) | 1,550 | |||||||||||||
| Deferred revenue | 21,564 | 25,457 | |||||||||||||
| Other assets | (92) | 75 | |||||||||||||
| Net cash provided by operating activities | 39,725 | 52,373 | |||||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Purchase of investment securities | (341,175) | (7,332) | |||||||||||||
| Proceeds from sales and maturities of investment securities | 215,480 | 278,031 | |||||||||||||
| Acquisitions of businesses, net of cash acquired | (11,784) | (1,911) | |||||||||||||
| Purchase of property and equipment | (6,407) | (3,878) | |||||||||||||
| Purchase of developed software and other intangibles | (3,488) | - | |||||||||||||
| Net cash provided by (used in) investing activities | (147,374) | 264,910 | |||||||||||||
| Cash flows from financing activities: | |||||||||||||||
| Excess tax benefits from share-based payment arrangements | 12,610 | 2,135 | |||||||||||||
| Net proceeds from issuance of common stock under Employee Stock Purchase Plan | - | 305 | |||||||||||||
| Proceeds from exercise of common stock options | 3,074 | 7,330 | |||||||||||||
| Purchase of treasury stock | - | (173) | |||||||||||||
| Other borrowings, net | 2,232 | - | |||||||||||||
| Net cash provided by financing activities | 17,916 | 9,597 | |||||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (122) | 2,490 | |||||||||||||
| Net increase (decrease) in cash and cash equivalents | (89,855) | 329,370 | |||||||||||||
| Cash and cash equivalents at beginning of the period | 527,239 | 267,547 | |||||||||||||
| Cash and cash equivalents at end of period | $ | 437,384 | $ | 596,917 | |||||||||||
| 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 Ended | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| Cost of revenue | $ | 582 | $ | 510 | |||||||||||
| Sales and marketing | 2,514 | 2,117 | |||||||||||||
| Research and development | 2,125 | 1,497 | |||||||||||||
| General and administration | 3,165 | 3,502 | |||||||||||||
| Total stock based compensation expense | $ | 8,386 | $ | 7,626 | |||||||||||
| Reconciliation of GAAP results to non-GAAP adjusted results | |||||||||||||||
| Three Months Ended | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| GAAP net income | $ | 16,221 | $ | 13,753 | |||||||||||
| GAAP provision for income taxes | 10,814 | 8,077 | |||||||||||||
| GAAP income before provision for income taxes | $ | 27,035 | $ | 21,830 | |||||||||||
| Add: Share-based compensation per FAS 123R | 8,386 | 7,626 | |||||||||||||
| Non-GAAP adjusted income before provision for income taxes | $ | 35,421 | $ | 29,456 | |||||||||||
| Non-GAAP cash provision for income taxes | $ | 1,771 | $ | 1,473 | |||||||||||
| Non-GAAP adjusted net income | $ | 33,650 | $ | 27,983 | |||||||||||
| Non-GAAP adjusted net income-diluted | $ | 35,042 | $ | 29,375 | |||||||||||
| Non-GAAP adjusted net income per share: | |||||||||||||||
| Basic | $ | 0.17 | $ | 0.15 | |||||||||||
| Diluted | $ | 0.16 | $ | 0.14 | |||||||||||
| Non-GAAP diluted net income per share computation: | |||||||||||||||
| Non-GAAP adjusted net income | $ | 33,650 | $ | 27,983 | |||||||||||
| 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 | $ | 35,042 | $ | 29,375 | |||||||||||
| Reconciliation of GAAP cash flows from operating activities to non-GAAP adjusted cash flows from operating activities | |||||||||||||||
| Three Months Ended | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| GAAP net cash provided by operating activities | $ | 39,725 | $ | 52,373 | |||||||||||
| Add: Excess tax benefits from share-based payment arrangements | 12,610 | 2,135 | |||||||||||||
| Non-GAAP net cash provided by operating activities | $ | 52,335 | $ | 54,508 | |||||||||||
| 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, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| GAAP Gross profit | $ | 100,609 | $ | 70,557 | |||||||||||
| Add: Non-cash share-based compensation per FAS 123R | 582 | 510 | |||||||||||||
| Non-GAAP gross profit | $ | 101,191 | $ | 71,067 | |||||||||||
| Non-GAAP gross margin | 85% | 85% | |||||||||||||
| Three Months Ended | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| GAAP operating expenses | $ | 85,657 | $ | 57,945 | |||||||||||
| Deduct: Non-cash share-based compensation per FAS 123R | (7,804) | (7,116) | |||||||||||||
| Non-GAAP adjusted operating expenses | $ | 77,853 | $ | 50,829 | |||||||||||
| Three Months Ended | |||||||||||||||
| May 31, | May 31, | ||||||||||||||
| 2007 | 2006 | ||||||||||||||
| GAAP operating income | $ | 14,952 | $ | 12,612 | |||||||||||
| Add: Non-cash share-based compensation per FAS 123R | 8,386 | 7,626 | |||||||||||||
| Non-GAAP adjusted operating income | $ | 23,338 | $ | 20,238 | |||||||||||
| Non-GAAP adjusted operating margin | 19.6% | 24.1% | |||||||||||||
