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Red Hat Reports Fiscal Fourth Quarter and Fiscal Year 2006 ResultsRALEIGH, N.C. --(Business Wire)-- March 28, 2006 -- Red Hat, Inc. (NASDAQ:RHAT): -- Annual Subscription Revenue up 53% from prior year -- Quarterly cash flow from operations up 64% from prior year -- Quarterly operating income up 165% year-over-year Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal fourth quarter and fiscal year ended February 28, 2006. Total revenue for the quarter was $78.7 million, an increase of 37% from the year ago quarter and 8% from the prior quarter. Subscription revenue was $66.7 million, up 44% year-over-year and 11% sequentially. For the full year, total revenue was $278.3 million, an increase of 42% over fiscal 2005 revenue, and subscription revenue was $230.4 million, up 53% from the prior year. The company reported operating income of $19.8 million for the quarter and $58.1 million for the year, representing increases of 165% over the fourth quarter of fiscal 2005 and 116% over the full fiscal year 2005. Net income for the quarter was $27.3 million, up 131% year-over-year and 18% sequentially. For the full year, net income rose 75% to $79.7 million over the prior fiscal year. Earnings per diluted share more than doubled to $.13 for the fourth quarter, versus $.06 in the year ago quarter. At year end, the company's total deferred revenue balance was $223.5 million, an increase of 63% on a year-over-year basis and 12% sequentially. Other highlights from the quarter included: -- Red Hat was rated the number one technology vendor for value and reliability in a Ziff Davis survey of over 1,000 CIO's and IT executives, for the second year in a row. -- Quarterly gross margin improved to 84% from 81% in the year ago period. -- Quarterly operating margin improved to 25% versus 13% in the year ago period. -- Total cash, cash equivalents, and investments as of February 28, 2006 were $1.1 billion. "This past year's results affirmed our ability to scale for growth," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "Margins continued to expand even as we built out our infrastructure through investments in headcount and systems. Moreover, our cash flow from operations improved significantly in FY 2006." "We are pleased to report continued market momentum," stated Dion Cornett, Vice President Investor Relations. "Fiscal year 2006 was a great year in that we outgrew leading industry analysts' estimates for Linux market growth and substantially out paced rivals, thus implying continued market share gains. The positive interaction between our community, ecosystem, and customers continues to extend our leadership position as the world's largest provider of open source solutions." About Red Hat, Inc. Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. The most trusted name in open source, CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com Forward-Looking Statements Any statements in this press release about future expectations, plans and prospects for the company, including statements containing the words "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the factors discussed in our most recent Quarterly Report on Form 10-Q filed with the SEC (a copy of which may be accessed through the SEC's website at http://www.sec.gov), reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures and the viability of the Internet. In addition, 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 the press release. LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners. Tables to follow
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended Twelve Months Ended
------------------------- -------------------------
February 28, February 28, February 28, February 28,
2006 2005 2006 2005
------------ ----------- ------------ -----------
Revenue:
Subscriptions $ 66,665 $ 46,410 $ 230,444 $ 151,125
Training and
services 12,056 11,042 47,886 45,341
----------- ----------- ----------- -----------
Total
subscription,
training and
services
revenue 78,721 57,452 278,330 196,466
----------- ----------- ----------- -----------
Cost of revenue:
Subscriptions 5,214 5,024 21,003 13,488
Training and
services 7,214 6,184 27,504 24,999
----------- ----------- ----------- -----------
Total cost of
subscription,
training and
services
revenue 12,428 11,208 48,507 38,487
----------- ----------- ----------- -----------
Total gross profit 66,293 46,244 229,823 157,979
Operating expense:
Sales and
marketing 23,427 18,695 84,723 62,939
Research and
development 11,037 8,791 40,883 32,468
General and
administrative 12,068 11,292 46,135 35,626
----------- ----------- ----------- -----------
Total operating
expense 46,532 38,778 171,741 131,033
----------- ----------- ----------- -----------
Income from
operations 19,761 7,466 58,082 26,946
Other income
(expense), net 7,452 5,717 30,053 24,431
Interest expense (1,507) (1,634) (6,119) (6,436)
----------- ----------- ----------- -----------
Income before
provision for
income taxes 25,706 11,549 82,016 44,941
Provision (benefit)
for income taxes (1,611) (291) 2,331 (485)
----------- ----------- ----------- -----------
Net income $ 27,317 $ 11,840 $ 79,685 $ 45,426
=========== =========== =========== ===========
Net income-diluted $ 28,740 $ 13,387 $ 85,455 $ 51,562
=========== =========== =========== ===========
Net income per
share:
Basic $ 0.15 $ 0.07 $ 0.45 $ 0.25
Diluted $ 0.13 $ 0.06 $ 0.41 $ 0.24
Weighted average
shares
outstanding:
Basic 180,898 178,233 178,112 181,636
Diluted 213,482 210,956 207,815 215,882
Note: certain prior year amounts have been reclassified to
conform with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
February, 28 February 28,
2006 2005
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 267,547 $ 140,169
Investments in debt securities 537,324 181,028
Accounts receivable, net 58,294 48,402
Earnings in excess of billings 1,498 3,557
Prepaid expenses and other current assets 16,576 12,097
----------- -----------
Total current assets 881,239 385,253
Property and equipment, net 35,822 32,726
Goodwill 75,942 73,591
Identifiable intangibles, net 13,467 16,740
Investments in debt securities 272,669 607,566
Other assets, net 35,102 18,160
----------- -----------
Total assets $ 1,314,241 $ 1,134,036
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,627 $ 8,426
Accrued expenses 31,960 21,065
Deferred revenue 162,934 109,426
Other current obligations 401 282
----------- -----------
Total current liabilities 200,922 139,199
Deferred lease credits 4,994 5,179
Long term deferred revenue 60,554 27,890
Other long term obligations 213 97
Convertible debentures 570,000 600,000
Stockholders' equity:
Minority interest 771 557
Common stock 19 19
Additional paid-in capital 763,906 714,604
Deferred compensation (2,418) (4,792)
Accumulated deficit (152,113) (231,798)
Treasury stock, at cost (124,125) (107,409)
Accumulated other comprehensive loss (8,482) (9,510)
----------- -----------
Total stockholders' equity 477,558 361,671
----------- -----------
Total liabilities and stockholders'
equity $ 1,314,241 $ 1,134,036
=========== ===========
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Twelve Months Ended
------------------------ -------------------------
February 28, February 28, February 28, February 28,
2006 2005 2006 2005
----------- ----------- ------------ -----------
Cash flows from
operating
activities:
Net income $ 27,317 $ 11,840 $ 79,685 $ 45,426
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 3,990 3,639 15,434 10,911
Deferred income
taxes (1,584) (1,673) (2,090) (3,602)
Stock-based
compensation
expense 508 1,212 4,105 4,719
Gain from
repurchase of
convertible
debentures - - (3,140) -
Provision for
doubtful accounts 674 411 1,043 1,969
Amortization of
debt issue costs 752 785 3,056 3,003
Loss on disposal
of property and
equipment 224 - 1,349 -
Other 899 - 1,660 319
Changes in operating
assets and
liabilities:
Accounts
receivable and
earnings in
excess of
billings (4,516) (4,766) (10,790) (9,284)
Prepaid expenses
and other current
assets (565) 58 (3,085) (238)
Identifiable
intangibles and
other assets 22 (98) 371 (1,392)
Accounts payable 442 1,671 (2,588) 962
Accrued expenses (1,073) 2,180 10,448 8,389
Deferred revenue 23,049 15,330 91,278 61,214
Deferred lease
credits (58) (28) (184) (179)
---------- ----------- ----------- -----------
Net cash provided
by operating
activities 50,081 30,561 186,552 122,217
---------- ----------- ----------- -----------
Cash flows from
investing
activities:
Purchase of
investment
securities (160,266) (37,554) (523,344) (854,481)
Proceeds from sales
and maturities of
investment
securities 169,932 54,835 502,905 529,819
Acquisitions of
businesses, net of
cash acquired (1,500) (20,750) (2,803) (21,053)
Purchase of other
investments - - (22,203) -
Purchase of
property and
equipment (4,369) (4,374) (16,757) (14,921)
Other financing - - (64) -
---------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities 3,797 (7,843) (62,266) (360,636)
---------- ----------- ----------- -----------
Cash flows from
financing
activities:
Repurchase of
convertible
debentures - - (26,301) -
Structured stock
repurchases - - 1,031 -
Net proceeds from
issuance of common
stock under
Employee Stock
Purchase Plan 1,064 724 3,394 2,118
Proceeds from
exercise of common
stock options 29,996 2,675 44,098 15,679
Purchase of
treasury stock (27) (54,781) (16,716) (99,973)
Other financing (318) (243) 237 (1,195)
---------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities 30,715 (51,625) 5,743 (83,371)
---------- ----------- ----------- -----------
Effect of foreign
currency exchange
rates on cash and
cash equivalents 1,008 (643) (2,652) 655
Net increase
(decrease) in cash
and cash
equivalents 85,601 (29,550) 127,377 (321,135)
Cash and cash
equivalents at
beginning of the
period 181,946 169,719 140,169 461,304
---------- ----------- ----------- -----------
Cash and cash
equivalents at end
of period $ 267,547 $ 140,169 $ 267,546 $ 140,169
========== =========== =========== ===========
Note: certain prior year amounts have been reclassified to
conform with current year presentation.
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