Red Hat Reports Second Quarter Results

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Red Hat Reports Second Quarter Results

  • Second quarter revenue of $323 million, up 15% year-over-year
  • Second quarter subscription revenue of $279 million, up 17% year-over-year
  • Second quarter operating cash flow of $104 million, up 35% year-over-year

RALEIGH, N.C.--(BUSINESS WIRE)-- Red Hat, Inc. (NYS: RHT) , the world's leading provider of open source solutions, today announced financial results for its fiscal year 2013 second quarter ended August 31, 2012.

Total revenue for the quarter was $322.6 million, an increase of 15% in U.S. dollars from the year ago quarter, or 20% measured in constant currency, as detailed in the tables below. Subscription revenue for the quarter was $278.8 million, up 17% in U.S. dollars year-over-year, or 22% measured in constant currency, as detailed in the tables below.


"Our double-digit growth was driven by demand for Red Hat's open source technologies that are key to creating innovation, scale and flexibility in our customers' data centers and their businesses," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "At Red Hat, we firmly believe in the strength of community-powered innovation. In early September, we were pleased to be recognized by Forbes, Inc. on its list of the World's Most Innovative Companies. We are also proud that our customers who have built mission-critical systems on Red Hat technologies are also reflected on the Forbes list of innovative companies."

GAAP operating income for the second quarter was $50.0 million, down 5% year-over-year. GAAP operating margin was 15.5%. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the second quarter was $79.2 million, up 4% year-over-year. Non-GAAP operating margin was 24.6%.

Net income for the quarter was $35.0 million, or $0.18 per diluted share, compared with $40.0 million, or $0.20 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP net income for the quarter was $54.9 million, or $0.28 per diluted share, as compared to $56.5 million, or $0.29 per diluted share, in the year ago quarter. The year ago quarter would have been $0.28 per diluted share excluding a discrete tax benefit of $2.1 million, or approximately $0.01 per share.

Operating cash flow was $103.9 million for the second quarter, as compared to $77.1 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $944.4 million, an increase of 16% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2012 was $1.36 billion.

"On a constant currency basis, subscription revenue grew 22% year-over-year while total revenue grew 20%. Our business model and offerings continue to appeal to customers despite the global economic malaise," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "This quarter marked a significant ramp-up in investments in our nascent storage business, with the launch in late June of Red Hat Storage Server 2.0. Furthermore, we announced two small technology acquisitions in the middleware space to further round out our offerings, which decreased the quarter's EPS by approximately $0.01 per share due to one-time closing costs."

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 is the world's leading provider of open source software solutions, taking 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; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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.

Red Hat and JBoss are trademarks of Red Hat, Inc., registered in the U.S. and other countries. Linux® is the registered trademark of Linus Torvalds in the U.S. and other countries.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
   
 
Three Months EndedSix Months Ended
August 31,August 31,August 31,August 31,
2012201120122011
Revenue:
 
Subscriptions$278,800$238,337$551,371$463,870
Training and services43,79542,98385,95682,196
 
 
Total subscription, training and services revenue322,595281,320637,327546,066
 
Cost of revenue:
 
Subscriptions18,84616,59636,78631,835
Training and services29,01230,04357,09257,251
 
 
Total cost of subscription, training and services revenue47,85846,63993,87889,086
 
 
Total gross profit274,737234,681543,449456,980
 
Operating expense:
Sales and marketing123,57899,730244,449197,056
Research and development63,36651,488123,24699,776
General and administrative37,81330,98571,72462,311
Facility exit costs--3,142-
 
Total operating expense224,757182,203442,561359,143
 
Income from operations49,98052,478100,88897,837
Interest income2,1542,1274,4484,063
Other income (expense), net(656)3261,23259
 
 
Income before provision for income taxes51,47854,931106,568101,959
Provision for income taxes16,47314,96334,10229,542
 
Net income$35,005$39,968$72,466$72,417
 
Net income per share:
Basic$0.18$0.21$0.38$0.38
Diluted$0.18$0.20$0.37$0.37
 
Weighted average shares outstanding:
Basic193,064192,937193,005193,046
Diluted195,795196,171195,929196,428
 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
 
ASSETS
August 31,February 29,
20122012 (1)
(Unaudited)
Current assets:
Cash and cash equivalents$571,576$549,217
Investments in debt and equity securities297,876264,298
Accounts receivable, net215,433255,180
Deferred tax assets, net72,00769,765
Prepaid expenses85,64281,266
Other current assets2,1351,629
 
Total current assets1,244,6691,221,355
 
Property and equipment, net113,09292,065
Goodwill595,430591,563
Identifiable intangibles, net122,709100,638
Investments in debt securities490,168446,838
Other assets, net39,57338,640
 
Total assets$2,605,641$2,491,099
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$139,060$114,078
Deferred revenue704,573711,408
Other current obligations963819
 
Total current liabilities844,596826,305
 
Long term deferred revenue239,827235,328
Other long term obligations37,53530,649
Stockholders' equity:
Common stock2323
Additional paid-in capital1,761,5241,709,082
Retained earnings464,142391,676
Treasury stock, at cost(728,894)(696,012)
Accumulated other comprehensive loss(13,112)(5,952)
 
Total stockholders' equity1,483,6831,398,817
 
Total liabilities and stockholders' equity$2,605,641$2,491,099
 
 
(1) Derived from audited financial statements
 

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
   
 
Three Months EndedSix Months Ended
August 31,August 31,August 31,August 31,
2012201120122011
 
Cash flows from operating activities:
Net income$35,005$39,968$72,466$72,417
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization14,56813,14728,64725,886
Share-based compensation expense23,85918,75346,06534,940
Deferred income taxes13,0368,15523,06319,210
Excess tax benefits from share-based payment arrangements(9,600)(8,112)(19,800)(16,672)
Other529(240)(1,840)(317)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable(18,735)(20,457)35,82511,585
Prepaid expenses83365(6,966)(3,228)
Accounts payable and accrued expenses15,2503,32826,348(611)
Deferred revenue26,43022,85121,30824,121
Other2,678(357)3,141(19)
 
Net cash provided by operating activities103,85377,101228,257167,312
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities(185,028)(220,436)(507,769)(401,286)
Proceeds from sales and maturities of available-for-sale debt securities190,094208,693417,779381,276
Proceeds from sales of available-for-sale equity securities-6813301,346
Acquisition of business, net of cash acquired(10,051)-(10,051)-
Purchase of strategic equity investments-(1,000)-(1,000)
Purchase of other intangible assets(24,341)(1,059)(26,863)(3,602)
Purchase of property and equipment(20,344)(11,523)(36,243)(20,179)
 
Net cash used in investing activities(49,670)(24,644)(162,817)(43,445)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements9,6008,11219,80016,672
Proceeds from exercise of common stock options2,6263,3706,5168,413
Purchase of treasury stock(2,871)(38,006)(32,882)(56,952)
Payments related to net settlement of employee share-based compensation awards(3,856)(2,952)(22,688)(11,985)
Payments on other borrowings(213)(94)(477)(688)
 
Net cash provided by (used in) financing activities5,286(29,570)(29,731)(44,540)
 
Effect of foreign currency exchange rates on cash and cash equivalents3,4914,348(13,350)15,501
Net increase in cash and cash equivalents62,96027,23522,35994,828
Cash and cash equivalents at beginning of the period508,616710,223549,217642,630
 
Cash and cash equivalents at end of period$571,576$737,458$571,576$737,458
 

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 EndedSix Months Ended
August 31,August 31,August 31,August 31,
2012201120122011
 
Cost of revenue$2,167$1,842$4,333$3,631
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