Red Hat Reports Third Quarter Results

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 Ended

Nine Months Ended

November 30,

November 30,

November 30,

November 30,

2012

2011

2012

2011

Revenue:

Subscriptions

$294,186

$246,538

$845,557

$710,408

Training and services

49,420

43,488

135,375

125,684

Total subscription, training and services revenue

343,606

290,026

980,932

836,092

Cost of revenue:

Subscriptions

21,153

17,041

57,939

48,876

Training and services

31,965

28,148

89,056

85,399

Total cost of subscription, training and services revenue

53,118

45,189

146,995

134,275

Total gross profit

290,488

244,837

833,937

701,817

Operating expense:

Sales and marketing

133,792

107,561

378,240

304,617

Research and development

68,655

53,739

191,901

153,515

General and administrative

38,122

29,965

109,847

92,277

Facility exit costs

-

-

3,142

-

Total operating expense

240,569

191,265

683,130

550,409

Income from operations

49,919

53,572

150,807

151,408

Interest income

1,936

2,075

6,384

6,138

Other income (expense), net

(730)

(227)

502

(167)

Income before provision for income taxes

51,125

55,420

157,693

157,379

Provision for income taxes

16,360

17,180

50,462

46,722

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:

Basic

193,374

193,393

193,127

193,162

Diluted

195,666

196,468

195,898

196,493

RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

November 30,

February 29,

2012

2012 (1)

(Unaudited)

Current assets:

Cash and cash equivalents

$605,911

$549,217

Investments in debt and equity securities

280,433

264,298

Accounts receivable, net

254,787

255,180

Deferred tax assets, net

63,342

69,765

Prepaid expenses

83,809

81,266

Other current assets

2,010

1,629

Total current assets

1,290,292

1,221,355

Property and equipment, net

128,743

92,065

Goodwill

608,149

591,563

Identifiable intangibles, net

130,025

100,638

Investments in debt securities

463,553

446,838

Other assets, net

41,137

38,640

Total assets

$2,661,899

$2,491,099

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$155,768

$114,078

Deferred revenue

735,580

711,408

Other current obligations

1,082

819

Total current liabilities

892,430

826,305

Long term deferred revenue

252,152

235,328

Other long term obligations

36,095

30,649

Stockholders' equity:

Common stock

23

23

Additional paid-in capital

1,770,525

1,709,082

Retained earnings

498,907

391,676

Treasury stock, at cost

(780,912)

(696,012)

Accumulated other comprehensive loss

(7,321)

(5,952)

Total stockholders' equity

1,481,222

1,398,817

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 Ended

Nine Months Ended

November 30,

November 30,

November 30,

November 30,

2012

2011

2012

2011

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 amortization

16,126

12,392

44,773

38,278

Share-based compensation expense

26,678

20,770

72,743

55,710

Deferred income taxes

6,686

17,015

29,749

36,225

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 expenses

2,652

(3,096)

(4,314)

(6,324)

Accounts payable and accrued expenses

21,554

22,206

47,903

21,595

Deferred revenue

35,207

32,046

56,515

56,167

Other

431

(144)

3,572

(159)

Net cash provided by operating activities

100,156

96,556

328,413

263,872

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 securities

169,743

196,991

587,522

578,267

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 arrangements

8,100

7,626

27,900

24,298

Proceeds from exercise of common stock options

4,294

7,139

10,810

15,552

Purchase of treasury stock

(52,018)

-

(84,900)