| [June 28, 2006] |
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Red Hat Reports Strong Fiscal First Quarter Operating Results
RALEIGH, N.C. --(Business Wire)-- June 28, 2006 -- Red Hat, Inc. (NASDAQ:RHAT):
-- Quarterly subscription revenue of $71.5 million up 45% from prior year
-- Quarterly cash flow from operations of $52.4 million up 43% from prior year
Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for the first quarter of its fiscal 2007 year.
Total revenue for the quarter was $84.0 million, an increase of 38% from the year ago quarter and 7% from the prior quarter. Subscription revenue was $71.5 million, up 45% year-over-year and 7% sequentially.
The company reported operating income of $12.6 million for the quarter, including $7.6 million of non-cash stock compensation expense related to the implementation of FAS123R. FAS123R, which requires the expensing of non-cash stock option grants and other equity awards, was not applicable in prior quarters.
GAAP net income for the quarter was $13.8 million, or $0.07 per share, at an estimated annual effective GAAP tax rate of 37% of pre-tax income. However, the company continues to anticipate an actual cash tax rate of approximately 5% of pre-tax income for the foreseeable future.
At quarter end, the company's total deferred revenue balance was $254.7 million, an increase of 61% on a year-over-year basis and 14% sequentially.
Other highlights from the quarter included:
-- Quarterly gross margin improved to 84% from 79% in the year ago period.
-- Total cash and investments as of May 31, 2006 were $1.1 billion.
-- On June 2, the company closed its previously announced acquisition of JBoss, Inc.
-- Red Hat held its second annual partner and customer Summit in Nashville, TN.
"The first fiscal quarter marks a great start to an exciting year for Red Hat," stated Charlie Peters, Executive Vice President and Chief Financial Officer. "In particular, we continued to deliver rapid top-line growth and market share gains. While profitability comparisons to prior periods' results are skewed as a result of the implementation of FAS123R and a higher non-cash tax rate, the company's core operations continue to improve in efficiency as evidenced by our growing cash flow. Furthermore, the actual cash that we have to invest back into the business to drive growth is not affected by the accounting treatment."
Peters added, "The international expansion and acquisitions closed since our last earnings report provide for new opportunities in key international geographies such as India and South America and improve our ability to capitalize on growing open source adoption beyond the operating system. Equally important, we are confident that we have the proper team in place to execute successfully on these initiatives."
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. A 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 an operating system platform, Red Hat Enterprise Linux, along with applications, management and middleware solutions, including JBoss Enterprise Middleware Suite. Red Hat is accelerating the shift to service-oriented architectures and enabling the next generation of web-enabled applications running on a low-cost, secure, open source platform. 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 a focus on security and ease of management. 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 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 the integration of acquisitions; the ability of the company to effectively compete; the inability to adequately protect the company's intellectual property and the potential for infringement or breach of license claims regarding third party intellectual property; risks related to data and information security vulnerabilities; ineffective management of, and dependence on key personnel as well as other factors contained in our most recent Annual Report on Form 10-K (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, 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 statement 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 and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
May 31, Feb. 28,
2006 2006
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $596,917 $267,547
Investments in debt securities 335,383 537,324
Accounts receivable, net 65,361 59,792
Prepaid expenses and other current assets 18,315 16,576
----------- -----------
Total current assets 1,015,976 881,239
Property and equipment, net 36,714 35,822
Goodwill 73,757 75,942
Identifiable intangibles, net 12,385 13,467
Investments in debt securities 205,308 272,669
Other assets, net 35,835 35,102
----------- -----------
Total assets $1,379,975 $1,314,241
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,661 $5,627
Accrued expenses 30,772 31,960
Deferred revenue 183,462 162,934
Other current obligations 536 401
----------- -----------
Total current liabilities 221,431 200,922
Deferred lease credits 4,937 4,994
Long term deferred revenue 71,287 60,554
Other long term obligations 77 213
Convertible debentures 570,000 570,000
Stockholders' equity:
Minority interest 488 771
Common stock 19 19
Additional paid-in capital 781,852 763,906
Deferred compensation - (2,418)
Accumulated deficit (138,246) (152,113)
Treasury stock, at cost (124,298) (124,125)
Accumulated other comprehensive loss (7,572) (8,482)
----------- -----------
Total stockholders' equity 512,243 477,558
----------- -----------
Total liabilities and stockholders' equity $1,379,975 $1,314,241
=========== ===========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
-------------------
May 31, May 31,
2006 2005
-------------------
Cash flows from operating activities:
Net income $13,753 $12,435
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,344 3,547
Deferred income taxes 5,411 (193)
Share-based compensation expense 7,626 1,166
Excess tax benefits from share-based payment
arrangements (2,135) -
Gain from repurchase of convertible debentures - (1,596)
Provision for doubtful accounts 501 84
Amortization of debt issue costs 752 782
Other (279) 41
Changes in operating assets and liabilities:
Accounts receivable (3,492) 596
Prepaid expenses and other current assets (1,299) (1,404)
Other assets 75 297
Accounts payable 109 (4,101)
Accrued expenses 1,550 2,464
Deferred revenue 25,457 22,486
--------- ---------
Net cash provided by operating activities 52,373 36,604
--------- ---------
Cash flows from investing activities:
Purchase of investment securities (7,332) (8,600)
Proceeds from sales and maturities of investment
securities 278,031 91,286
Acquisitions of businesses, net of cash acquired (1,911) -
Purchase of other investments - (767)
Purchase of property and equipment (3,878) (3,272)
--------- ---------
Net cash provided by investing activities 264,910 78,647
--------- ---------
Cash flows from financing activities:
Excess tax benefits from share-based payment
arrangements 2135 -
Repurchase of convertible debentures - (8,210)
Structured stock repurchases - 1,031
Net proceeds from issuance of common stock under
Employee Stock Purchase Plan 305 727
Proceeds from exercise of common stock options 7,330 1,706
Purchase of treasury stock (173) (5,128)
Other financing - (332)
--------- ---------
Net cash provided by (used in) financing
activities 9,597 (10,206)
--------- ---------
Effect of foreign currency exchange rates on cash
and cash equivalents 2,490 (846)
Net increase in cash and cash equivalents 329,370 104,199
Cash and cash equivalents at beginning of the
period 267,547 140,169
--------- ---------
Cash and cash equivalents at end of period $596,917 $244,368
========= =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months
Ended
-----------------
May 31, May 31,
2006 2005
-----------------
Revenue:
Subscriptions $71,492 $49,240
Training and services 12,510 11,540
-------- --------
Total subscription, training and services
revenue 84,002 60,780
-------- --------
Cost of revenue:
Subscriptions 5,996 5,834
Training and services 7,449 6,794
-------- --------
Total cost of subscription, training and
services revenue 13,445 12,628
-------- --------
Total gross profit 70,557 48,152
Operating expense:
Sales and marketing 30,501 20,314
Research and development 13,815 9,848
General and administrative 13,629 10,343
-------- --------
Total operating expense 57,945 40,505
-------- --------
Income from operations 12,612 7,647
Other income (expense), net 10,702 7,735
Interest expense (1,484) (1,566)
-------- --------
Income before provision for income taxes 21,830 13,816
Provision for income taxes 8,077 1,381
-------- --------
Net income $13,753 $12,435
======== ========
Net income-diluted $14,705 $13,964
======== ========
Net income per share:
Basic $0.07 $0.07
Diluted $0.07 $0.07
Weighted average shares outstanding:
Basic 183,579 176,781
Diluted 214,325 206,907
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
Non cash stock-based compensation expense included above in cost of
revenue and operating expense line items:
Cost of revenue $510 $-
Sales and marketing 2,117 7
Research and development 1,497 48
General and administration 3,502 1,111
-------- --------
Total stock based compensation expense $7,626 $1,166
======== ========
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