Red Hat Reports Fourth Quarter and Fiscal Year 2013 Results

Business Wirevia The Motley Fool

Red Hat Reports Fourth Quarter and Fiscal Year 2013 Results

  • Fourth quarter revenue of $348 million, up 17% year-over-year; full fiscal year revenue of $1.33 billion, up 17% year-over-year

  • Fourth quarter subscription revenue of $303 million, up 19% year-over-year; full fiscal year subscription revenue of $1.15 billion, up 19% year-over-year

  • Fourth quarter operating cash flow of $137 million, up 7% year-over-year; full fiscal year operating cash flow of $465 million, up 19% year-over-year

  • Year-end deferred revenue balance exceeds a billion dollars, 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 fourth quarter and fiscal year ended February 28, 2013.

Total revenue for the quarter was $348 million, an increase of 17% in U.S. dollars from the year ago quarter, or 18% measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $303 million, up 19% in U.S. dollars year-over-year, or 20% measured in constant currency. For the full fiscal year 2013, total revenue was $1.33 billion, up 17% in U.S. dollars year-over-year, or 20% measured in constant currency, and subscription revenue was $1.15 billion, up 19% in U.S. dollars year-over-year, or 22% measured in constant currency.


"For FY13, the growth drivers in our business remained intact, driving record annual revenue, billings proxy and total backlog up 17%, 14% and over 19% year-over-year, respectively. Within total backlog, the value of customer contracts to be billed in the future and not reflected in our financial statements increased to over $280 million, or up over 40%, as customers increased their commitments to Red Hat technologies in the data center," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We continued to see momentum with large deals in Q4, closing a record number of deals in excess of $5 million and $10 million. We now provide solutions to over 90% of Fortune 500 companies as well as tens of thousands of smaller companies. New customer additions coupled with renewing and up-selling our existing customer base enabled us to exceed the billion dollar milestone in both subscription revenue and deferred revenues for the first time."

GAAP operating income for the fourth quarter and the full fiscal year 2013 was $50 million and $201 million, respectively. GAAP operating margin was 14.4% in the fourth quarter and 15.1% for the full year. After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP operating income for the quarter was $84 million, or a 24.0% operating margin. Full year non-GAAP operating income was $326 million and full year non-GAAP operating margin was 24.6%.

GAAP net income for the fourth quarter was $43 million, or $0.22 per diluted share, compared with $35 million, or $0.18 per diluted share, for the prior quarter and $36 million, or $0.18 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the fourth quarter was $70 million, or $0.36 per diluted share, after adjusting for stock compensation and amortization expenses, as detailed in the tables below. This compares to non-GAAP adjusted net income of $57 million, or $0.29 per diluted share in the prior quarter, and $57 million, or $0.29 per diluted share in the year ago quarter. Both the GAAP and non-GAAP results for the fiscal 2013 fourth quarter benefited by approximately $0.03 per share as a result of the retroactive reinstatement in January 2013 of the U.S. research tax credit.

For the full year, GAAP net income was $150 million or $0.77 per diluted share, compared with $147 million or $0.75 per diluted share in the prior year. After adjusting for stock compensation, amortization expenses and certain facility exit costs, as detailed in the tables below, non-GAAP adjusted net income for the year was $240 million or $1.23 per diluted share, compared to $216 million or $1.10 per diluted share for the previous fiscal year.

Operating cash flow totaled $137 million for the fourth quarter and $465 million for the full year. At the end of the fiscal year, the company's total deferred revenue balance was $1.09 billion, an increase of 15% on a year-over-year basis and 10% sequentially. Cash and investments at February 28, 2013 totaled $1.32 billion after repurchasing approximately 687 thousand shares of common stock in the fourth quarter for approximately $36 million. For fiscal year 2013, Red Hat repurchased approximately 2.3 million shares, or approximately $121 million of common stock.

"During fiscal year 2013, we invested aggressively in new product areas such as storage, cloud computing, management and big data through new internal initiatives and three acquisitions in the second half of the fiscal year. Despite these investments, we generated over 9% year-over-year growth in non-GAAP operating income and 19% full year operating cash flow growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "These investments enhance our strategic position in the data center and increase our addressable market."

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $1.49 billion for the fiscal year 2013 compared with $1.31 billion for the prior fiscal year, an increase of 14%. Total backlog for fiscal year 2013 was in excess of $1.37 billion or up over 19% year-over-year. We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements. The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $280 million as of February 28, 2013, compared with in excess of $200 million for the fiscal year ending February 29, 2012, up over 40% year-over-year.

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

RED HAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands - except per share amounts)

Three Months Ended

Twelve Months Ended

February 28,

February 29,

February 28,

February 29,

2013

2012

2013

2012 (1)

Revenue:

Subscriptions

$302,783

$255,167

$1,148,341

$965,575

Training and services

45,101

41,844

180,476

167,528

Total subscription, training and services revenue

347,884

297,011

1,328,817

1,133,103

Cost of revenue:

Subscriptions

22,400

17,360

80,340

66,237

Training and services

31,203

26,912

120,260

112,311

Total cost of subscription, training and services revenue

53,603

44,272

200,600

178,548

Total gross profit

294,281

252,739

1,128,217

954,555

Operating expense:

Sales and marketing

136,314

115,018

514,554

419,635

Research and development

71,248

55,147

263,150

208,662

General and administrative

36,487

34,069

146,333

126,345

Facility exit costs

-

-

3,142

-

Total operating expense

244,049

204,234

927,179

754,642

Income from operations

50,232

48,505

201,038

199,913

Interest income

1,861

2,279

8,245

8,418

Other income (expense), net

(34)

(155)

469

(322)

Income before provision for income taxes

52,059

50,629

209,752

208,009

Provision for income taxes

9,086

14,661

59,548

61,383

Net income

$42,973

$35,968

$150,204

$146,626

Net income per share:

Basic

$0.22

$0.19

$0.78

$0.76

Diluted

$0.22

$0.18

$0.77

$0.75

Weighted average shares outstanding:

Basic

193,207

193,117

193,147

193,151

Diluted

195,133

195,879

195,804

196,451

(1) Derived from audited financial statements

RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

February 28,

February 29,

2013

2012 (1)

(Unaudited)

Current assets:

Cash and cash equivalents

$487,084

$549,217

Investments in debt and equity securities

392,381

264,298

Accounts receivable, net

302,942

255,180

Deferred tax assets, net

88,765

69,765

Prepaid expenses

94,421

81,266

Other current assets

3,156

1,629

Total current assets

1,368,749

1,221,355

Property and equipment, net

141,586

92,065

Goodwill

690,911

591,563

Identifiable intangibles, net

142,243

100,638

Investments in debt securities

438,908

446,838

Other assets, net

31,263

38,640

Total assets

$2,813,660

$2,491,099

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$154,202

$114,078

Deferred revenue

830,486

711,408

Other current obligations

1,024

819

Total current liabilities

985,712

826,305

Long term deferred revenue

259,466

235,328

Other long term obligations

48,321

30,649

Stockholders' equity:

Common stock

23

23

Additional paid-in capital

1,802,899

1,709,082

Retained earnings

541,880

391,676

Treasury stock, at cost

(816,674)

(696,012)

Accumulated other comprehensive loss

(7,967)

(5,952)

Total stockholders' equity

1,520,161

1,398,817

Total liabilities and stockholders' equity

$2,813,660

$2,491,099

(1) Derived from audited financial statements

RED HAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended

Twelve Months Ended

February 28,

February 29,

February 28,

February 29,

2013

2012

2013

2012 (1)

Cash flows from operating activities:

Net income

$42,973

$35,968

$150,204

$146,626

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

17,568

13,094

62,341

51,372

Share-based compensation expense

25,954

23,557

98,698

79,267

Deferred income taxes

10,101

9,477

39,849

45,702

Excess tax benefits from share-based payment arrangements

(6,319)

(5,633)

(34,219)

(29,931)

Net amortization of bond premium on available-for-sale debt securities

1,795

1,970

6,889

6,518

Other

(233)

(636)

(2,626)

(1,186)

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

Accounts receivable

(47,447)

(46,981)

(46,913)

(70,410)

Prepaid expenses

(10,411)

(12,866)

(14,726)

(19,190)

Accounts payable and accrued expenses

(2,612)

(11,060)

40,196

5,986

Deferred revenue

106,059

120,688

162,574

176,855

Other

(541)

433

3,030

274

Net cash provided by operating activities

136,887

128,011

465,297

391,883

Cash flows from investing activities:

Purchase of available-for-sale debt securities

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