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: 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 Ended | Six Months 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 Ended | Six Months 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 Ended | Six Months 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 | % |
Contacts:
Kerrin Catallozzi, 919-754-4268
Corporate
Communications
kcatallo@redhat.com
or
Linda
Brewton, 919-754-4476
Investor Relations
lbrewton@redhat.com