Red Hat Reports Second Quarter Results

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 Ended

Six Months Ended

August 31,

August 31,

August 31,

August 31,

2012

2011

2012

2011

Revenue:

Subscriptions

$278,800

$238,337

$551,371

$463,870

Training and services

43,795

42,983

85,956

82,196

Total subscription, training and services revenue

322,595

281,320

637,327

546,066

Cost of revenue:

Subscriptions

18,846

16,596

36,786

31,835

Training and services

29,012

30,043

57,092

57,251

Total cost of subscription, training and services revenue

47,858

46,639

93,878

89,086

Total gross profit

274,737

234,681

543,449

456,980

Operating expense:

Sales and marketing

123,578

99,730

244,449

197,056

Research and development

63,366

51,488

123,246

99,776

General and administrative

37,813

30,985

71,724

62,311

Facility exit costs

-

-

3,142

-

Total operating expense

224,757

182,203

442,561

359,143

Income from operations

49,980

52,478

100,888

97,837

Interest income

2,154

2,127

4,448

4,063

Other income (expense), net

(656)

326

1,232

59

Income before provision for income taxes

51,478

54,931

106,568

101,959

Provision for income taxes

16,473

14,963

34,102

29,542

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:

Basic

193,064

192,937

193,005

193,046

Diluted

195,795

196,171

195,929

196,428

RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

August 31,

February 29,

2012

2012 (1)

(Unaudited)

Current assets:

Cash and cash equivalents

$571,576

$549,217

Investments in debt and equity securities

297,876

264,298

Accounts receivable, net

215,433

255,180

Deferred tax assets, net

72,007

69,765

Prepaid expenses

85,642

81,266

Other current assets

2,135

1,629

Total current assets

1,244,669

1,221,355

Property and equipment, net

113,092

92,065

Goodwill

595,430

591,563

Identifiable intangibles, net

122,709

100,638

Investments in debt securities

490,168

446,838

Other assets, net

39,573

38,640

Total assets

$2,605,641

$2,491,099

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$139,060

$114,078

Deferred revenue

704,573

711,408

Other current obligations

963

819

Total current liabilities

844,596

826,305

Long term deferred revenue

239,827

235,328

Other long term obligations

37,535

30,649

Stockholders' equity:

Common stock

23

23

Additional paid-in capital

1,761,524

1,709,082

Retained earnings

464,142

391,676

Treasury stock, at cost

(728,894)

(696,012)

Accumulated other comprehensive loss

(13,112)

(5,952)

Total stockholders' equity

1,483,683

1,398,817

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 Ended

Six Months Ended

August 31,

August 31,

August 31,

August 31,

2012

2011

2012

2011

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 amortization

14,568

13,147

28,647

25,886

Share-based compensation expense

23,859

18,753

46,065

34,940

Deferred income taxes

13,036

8,155

23,063

19,210

Excess tax benefits from share-based payment arrangements

(9,600)

(8,112)

(19,800)

(16,672)

Other

529

(240)

(1,840)

(317)

Changes in operating assets and liabilities net of effects of acquisitions:

Accounts receivable

(18,735)

(20,457)

35,825

11,585

Prepaid expenses

833

65

(6,966)

(3,228)

Accounts payable and accrued expenses

15,250

3,328

26,348

(611)

Deferred revenue

26,430

22,851

21,308

24,121

Other

2,678

(357)

3,141

(19)

Net cash provided by operating activities

103,853

77,101

228,257

167,312

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 securities

190,094

208,693

417,779

381,276

Proceeds from sales of available-for-sale equity securities

-

681

330

1,346

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 arrangements

9,600

8,112

19,800

16,672

Proceeds from exercise of common stock options

2,626

3,370

6,516

8,413

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 activities

5,286

(29,570)

(29,731)

(44,540)

Effect of foreign currency exchange rates on cash and cash equivalents

3,491

4,348

(13,350)

15,501

Net increase in cash and cash equivalents

62,960

27,235

22,359

94,828

Cash and cash equivalents at beginning of the period

508,616

710,223

549,217

642,630

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 Ended

Six Months Ended

August 31,

August 31,

August 31,

August 31,

2012

2011

2012

2011

Cost of revenue

$2,167

$1,842

$4,333

$3,631

Sales and marketing