Red Hat Reports Second Quarter Results

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Red Hat Reports Second Quarter Results

  • Total revenue of $374 million, up 16% year-over-year
  • Subscription revenue of $327 million, up 17% year-over-year
  • GAAP EPS of $0.21, up 17% year-over-year; non-GAAP EPS of $0.35, up 25% year-over-year
  • Operating cash flow of $119 million, up 15% 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 2014 second quarter ended August 31, 2013.

Total revenue for the quarter was $374 million, an increase of 16% in U.S. dollars from the year ago quarter, or17%measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $327 million, up 17% in U.S. dollars year-over-year, or 18% measured in constant currency.


"We are a market leader for new innovations based on open source technologies that are driving the transformation of the data center toward an open, hybrid cloud infrastructure," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We recently added infrastructure-as-a-service, Red Hat Enterprise Linux OpenStack Platform, to our portfolio of cloud offerings. The combination of this powerful technology with our platform-as-a-service, open software-defined storage and cloud management solutions create a compelling road map for our customers in the move to cloud computing."

GAAP operating income for the second quarter was $56 million, up 11% year-over-year. After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, as detailed in the tables below, non-GAAP operating income for the second quarter was $94 million, up 19% year-over-year. For the second quarter, GAAP operating margin was 14.8% and non-GAAP operating margin was 25.2%.

Net income for the quarter was $41 million, or $0.21 per diluted share, compared with $35 million, or $0.18 per diluted share, in the year ago quarter. After adjusting for stock compensation, amortization of intangible assets and facility exit expenses, as detailed in the tables below, non-GAAP net income for the quarter was $68 million, or $0.35 per diluted share, as compared to $55 million, or $0.28 per diluted share, in the year ago quarter.

Operating cash flow was $119 million for the second quarter, as compared to $104 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $1.06 billion, an increase of 12% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2013 was $1.29 billion after repurchasing approximately $20 million of common stock, or approximately 438 thousand shares, in the second quarter. Red Hat has repurchased approximately $199 million of common stock, or approximately 4.1 million shares, during the first six months of fiscal 2014.

"We delivered mid-to-high teens growth across several financial metrics including revenue, non-GAAP operating income and operating cash flow," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These results were driven in particular by strong subscription revenue growth, up 17% in U.S. dollars and 18% in constant currency. The billing proxy, which we define as total revenue plus the change in deferred revenue found on the Statement of Cash Flows, was $376 million, up 8% in U.S. dollars and 9% in constant currency. This billings growth reflects modest IT spending in Europe and the impact of large deal arrangements."

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 a 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 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; the integration of acquisitions and the ability to market successfully acquired technologies and products; uncertainty and adverse results in litigation and related settlements; 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, the Shadowman logo, JBoss and OpenShift are registered trademarks of Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark of Linus Torvald and OpenStack is a registered trademark of OpenStack, LLC.

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,
2013201220132012
Revenue:
 
Subscriptions$326,692$278,800$642,509$551,371
Training and services47,73143,79595,17385,956
 
Total subscription, training and services revenue374,423322,595737,682637,327
 
Cost of revenue:
 
Subscriptions23,51818,84646,89336,786
Training and services32,06229,01264,74457,092
 
Total cost of subscription, training and services revenue55,58047,858111,63793,878
 
 
Total gross profit318,843274,737626,045543,449
 
Operating expense:
Sales and marketing144,596123,578287,040244,449
Research and development78,29963,366152,100123,246
General and administrative38,20337,81372,53771,724
Facility exit costs2,171-2,1713,142
 
Total operating expense263,269224,757513,848442,561
 
Income from operations55,57449,980112,197100,888
Interest income1,5272,1543,0294,448
Other income (expense), net1,196(656)7721,232
 
 
Income before provision for income taxes58,29751,478115,998106,568
Provision for income taxes17,48916,47334,79934,102
 
Net income$40,808$35,005$81,199$72,466
 
Net income per share:
Basic$0.22$0.18$0.43$0.38
Diluted$0.21$0.18$0.42$0.37
 
Weighted average shares outstanding:
Basic189,437193,064190,276193,005
Diluted191,432195,795192,230195,929
 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
   
ASSETS
 
August 31,February 28,
20132013 (1)
(Unaudited)
Current assets:
Cash and cash equivalents$596,794$487,084
Investments in debt and equity securities266,841392,381
Accounts receivable, net232,884302,942
Deferred tax assets, net88,32588,765
Prepaid expenses93,98794,421
Other current assets2,8293,156
 
Total current assets1,281,6601,368,749
 
Property and equipment, net167,343141,586
Goodwill690,342690,911
Identifiable intangibles, net142,247142,243
Investments in debt securities427,036438,908
Other assets, net30,95331,263
 
Total assets$2,739,581$2,813,660
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$178,904$154,202
Deferred revenue796,044830,486
Other current obligations9931,024
 
Total current liabilities975,941985,712
 
Long term deferred revenue263,553259,466
Other long term obligations58,48348,321
Stockholders' equity:
Common stock2323
Additional paid-in capital1,846,8251,802,899
Retained earnings623,079541,880
Treasury stock, at cost(1,016,401)(816,674)
Accumulated other comprehensive loss(11,922)(7,967)
 
Total stockholders' equity1,441,6041,520,161
 
Total liabilities and stockholders' equity$2,739,581$2,813,660
 
 
(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,
2013201220132012
 
Cash flows from operating activities:
Net income$40,808$35,005$81,199$72,466
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization18,43914,56836,37128,647
Share-based compensation expense29,87423,85953,00646,065
Deferred income taxes3,81813,03616,66323,063
Excess tax benefits from share-based payment arrangements(2,610)(9,600)(5,643)(19,800)
Net amortization of bond premium on available-for-sale debt securities2,2851,7484,3363,420
Other(96)52947(1,840)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable(6,341)(18,735)66,08135,825
Prepaid expenses(5,645)833(2,394)(6,966)
Accounts payable and accrued expenses38,90213,50226,29322,928
Deferred revenue1,88026,430(15,020)21,308
Other(2,385)2,678(195)3,141
 
Net cash provided by operating activities118,929103,853260,744228,257
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities(217,433)(185,028)(347,076)(507,769)
Proceeds from sales and maturities of available-for-sale debt securities153,917190,094479,767417,779
Acquisition of business, net of cash acquired-(10,051)-(10,051)
Purchase of other intangible assets(10,177)(24,341)(12,521)
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