Red Hat Reports Third Quarter Results

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Red Hat Reports Third Quarter Results

  • Third quarter revenue of $344 million, up 18% year-over-year
  • Third quarter subscription revenue of $294 million, up 19% year-over-year
  • Third quarter total deferred revenue of $988 million, up 21% 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 third quarter ended November 30, 2012.

Total revenue for the quarter was $343.6 million, an increase of 18% in U.S. dollars from the year ago quarter, or 21% measured in constant currency, as detailed in the tables below. Subscription revenue for the quarter was $294.2 million, up 19% in U.S. dollars year-over-year, or 22% measured in constant currency, as detailed in the tables below.


"Strong execution, industry leading solutions and our ability to deliver a compelling ROI to our customers, all contributed to continued momentum and strong third quarter revenue growth in the face of a challenging global economic environment. Red Hat is benefiting from our position as a trusted vendor for IT," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "Since October of last year we have completed three acquisitions, and are announcing a fourth today to expand our portfolio of open source solutions and enlarge our addressable market. As our enterprise customers move to open, hybrid cloud architectures, we are addressing their needs with a clear roadmap based on industry-leading open source technologies."

GAAP operating income for the third quarter was $49.9 million, down 7% year-over-year, due largely to acquisition-related costs, including stock compensation and amortization. GAAP operating margin was 14.5%. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the third quarter was $82.5 million, up 5% year-over-year. Non-GAAP operating margin was 24.0%.

Net income for the quarter was $34.8 million, or $0.18 per diluted share, compared with $38.2 million, or $0.19 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 $56.9 million, or $0.29 per diluted share, as compared to $55.7 million, or $0.28 per diluted share, in the year ago quarter.

Operating cash flow was $100.2 million for the third quarter, as compared to $96.6 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $987.7 million, an increase of 21% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2012 were $1.35 billion.

"While we continue to increase investments in new technologies and growth initiatives, our solid performance is driving steady profitability and strong operating cash flow. In Q3, we used our strong balance sheet and cash flow to repurchase approximately $52 million of common stock, in addition to closing the FuseSource acquisition which enhances our offering in the fast-growing Application Integration software space." stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We have continued this focused investment in key growth opportunities with the announcement of an agreement to acquire ManageIQ, Inc. ManageIQ positions us deeper in the cloud management market which analysts estimate will be a $3 billion market by 2016."

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, 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; 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 EndedNine Months Ended
November 30,November 30,November 30,November 30,
2012201120122011
Revenue:
 
Subscriptions$294,186$246,538$845,557$710,408
Training and services49,42043,488135,375125,684
 
 
Total subscription, training and services revenue343,606290,026980,932836,092
 
Cost of revenue:
 
Subscriptions21,15317,04157,93948,876
Training and services31,96528,14889,05685,399
 
 
Total cost of subscription, training and services revenue53,11845,189146,995134,275
 
 
Total gross profit290,488244,837833,937701,817
 
Operating expense:
Sales and marketing133,792107,561378,240304,617
Research and development68,65553,739191,901153,515
General and administrative38,12229,965109,84792,277
Facility exit costs--3,142-
 
Total operating expense240,569191,265683,130550,409
 
Income from operations49,91953,572150,807151,408
Interest income1,9362,0756,3846,138
Other income (expense), net(730)(227)502(167)
 
 
Income before provision for income taxes51,12555,420157,693157,379
Provision for income taxes16,36017,18050,46246,722
 
Net income$34,765$38,240$107,231$110,657
 
Net income per share:
Basic$0.18$0.20$0.56$0.57
Diluted$0.18$0.19$0.55$0.56
 
Weighted average shares outstanding:
Basic193,374193,393193,127193,162
Diluted195,666196,468195,898196,493

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
       
(In thousands)
 
ASSETS
November 30,February 29,
20122012 (1)
(Unaudited)
Current assets:
Cash and cash equivalents$605,911$549,217
Investments in debt and equity securities280,433264,298
Accounts receivable, net254,787255,180
Deferred tax assets, net63,34269,765
Prepaid expenses83,80981,266
Other current assets2,0101,629
 
Total current assets1,290,2921,221,355
 
Property and equipment, net128,74392,065
Goodwill608,149591,563
Identifiable intangibles, net130,025100,638
Investments in debt securities463,553446,838
Other assets, net41,13738,640
 
Total assets$2,661,899$2,491,099
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$155,768$114,078
Deferred revenue735,580711,408
Other current obligations1,082819
 
Total current liabilities892,430826,305
 
Long term deferred revenue252,152235,328
Other long term obligations36,09530,649
Stockholders' equity:
Common stock2323
Additional paid-in capital1,770,5251,709,082
Retained earnings498,907391,676
Treasury stock, at cost(780,912)(696,012)
Accumulated other comprehensive loss(7,321)(5,952)
 
Total stockholders' equity1,481,2221,398,817
 
Total liabilities and stockholders' equity$2,661,899$2,491,099
 
 
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
        
 
Three Months EndedNine Months Ended
November 30,November 30,November 30,November 30,
2012201120122011
 
Cash flows from operating activities:
Net income$34,765$38,240$107,231$110,657
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization16,12612,39244,77338,278
Share-based compensation expense26,67820,77072,74355,710
Deferred income taxes6,68617,01529,74936,225
Excess tax benefits from share-based payment arrangements(8,100)(7,626)(27,900)(24,298)
Other(552)(233)(2,393)(550)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable(35,291)(35,014)534(23,429)
Prepaid expenses2,652(3,096)(4,314)(6,324)
Accounts payable and accrued expenses21,55422,20647,90321,595
Deferred revenue35,20732,04656,51556,167
Other431(144)3,572(159)
 
Net cash provided by operating activities100,15696,556328,413263,872
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities(123,318)(329,730)(631,087)(731,016)
Proceeds from sales and maturities of available-for-sale debt securities169,743196,991587,522578,267
Acquisition of business, net of cash acquired(21,188)(135,210)(31,239)(135,210)
Purchase of other intangible assets(5,577)(643)(32,440)(4,245)
Purchase of property and equipment(28,309)(11,115)(64,552)(31,294)
Other(66)(1,622)264(1,276)
 
Net cash used in investing activities(8,715)(281,329)(171,532)(324,774)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements8,1007,62627,90024,298
Proceeds from exercise of common stock options4,2947,13910,81015,552
Purchase of treasury stock(52,018)-(84,900)<
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