Red Hat 8-K Red Hat Reports Third Quarter Results

Exhibit 99.1

Red Hat Reports Third Quarter Results

• Revenue of $194 million, up 18% year-over-year
• Subscription Revenue of $164 million, up 21% year-over-year
• Deferred Revenue of $619 million, up 23% year-over-year
• Repurchased $52.3 million, or 1.9 million shares, of common stock

RALEIGH, N.C.--(BUSINESS WIRE)--December 22, 2009--Red Hat (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2010 third quarter ended November 30, 2009.

Total revenue for the quarter was $194.3 million, an increase of 18% from the year ago quarter. Subscription revenue for the quarter was $164.4 million, up 21% year-over-year.

“Continued solid execution drove another quarter of strong results for Red Hat. Our double digit growth in the current economic environment was driven by our compelling value proposition and outstanding service. Our customer focus has clearly differentiated us from the competition. Red Hat was recently ranked as #1 among software vendors by IT executives for the fifth time in six years in the Ziff Davis CIO Insight Study, with the highest marks for reliability and value,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “We also continued to introduce new products, including the November release of RHEV that advances our position in server virtualization and cloud computing. RHEV provides customers the choice of a high-value, low cost, open management solution that was not previously available in the $2 billion virtualization market.”

GAAP operating income for the quarter was $19.8 million, including a previously announced charge of $8.8 million for a litigation settlement, compared to $21.0 million in the year ago quarter. After adjusting for stock compensation, amortization expenses and the charge for the litigation settlement as detailed in the tables below, non-GAAP operating income for the quarter was $46.1 million, up 20% year-over-year. GAAP operating margin was 10.2%. Non-GAAP operating margin was 23.7%, up 50 basis points from the year ago quarter.

GAAP net income for the quarter was $16.4 million, or $0.08 per diluted share, compared with $24.3 million, or $0.12 per diluted share, in the year ago quarter. The current quarter GAAP net income was reduced by $0.03 per diluted share due to the charge for the litigation settlement. Non-GAAP adjusted net income for the quarter was $33.5 million, or $0.17 per diluted share, after adjusting for stock compensation, amortization expenses and the charge for the litigation settlement as detailed in the tables below, as compared to $36.9 million, or $0.18 per diluted share, in the year ago quarter.

Operating cash flow totaled $54.1 million, compared to $59.1 million from the year ago quarter. Due to record billings, accounts receivable increased $24 million compared to last year even as days sales outstanding (DSO) improved to 54 days compared to 59 days last year. At November 30, the company’s total deferred revenue balance was $618.7 million, an increase of 23% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2009 were $959.1 million after repurchasing $52.3 million, or 1.9 million shares, of common stock.

“Strong bookings, particularly in North America, led to strong billings and greater than 20% growth in subscription revenue and deferred revenue, as well as further improvement of non-GAAP operating margins,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “This type of consistent performance, combined with our strong balance sheet, led to our third debt rating upgrade in 20 months by Standard and Poors rating agency.”

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, the world's leading provider of open source solutions and a component of the S&P 500, is headquartered in Raleigh, NC with over 65 offices spanning the globe. CIOs ranked Red Hat as one of the top vendors delivering value in Enterprise Software for six consecutive years in the CIO Insight Magazine Vendor Value survey. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with virtualization, applications, management and Services Oriented Architecture (SOA) solutions, including Red Hat Enterprise Virtualization and JBoss Enterprise Middleware. Red Hat also offers support, training and consulting services to its customers worldwide. 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, uncertainty and adverse results in litigation and related settlements, the integration of acquisitions and the ability to market successfully acquired technologies and products; the ability of the Company to effectively compete; 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 conditions, and governmental and public policy changes. 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.

© 2009 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						Nine Months Ended
				November 30,			November 30,			November 30,			November 30,
					2009			2008			2009			2008
Revenue:
		Subscriptions		$	164,432		$	135,451		$	469,496		$	401,854
		Training and services			29,914			29,881			82,872			84,497
			Total subscription, training and services revenue		194,346			165,332			552,368			486,351
Cost of revenue:
		Subscriptions			11,010			8,771			32,033			27,448
		Training and services			18,588			17,765			52,474			53,025
			Total cost of subscription, training and services revenue		29,598			26,536			84,507			80,473
	Total gross profit				164,748			138,796			467,861			405,878
Operating expense:
	Sales and marketing				71,498			58,514			202,242			177,350
	Research and development				38,605			34,544			110,068			95,184
	General and administrative				26,102			24,768			74,411			71,060
	Litigation Settlement				8,750			-			8,750			-
		Total operating expense			144,955			117,826			395,471			343,594
Income from operations					19,793			20,970			72,390			62,284
	Interest income				2,206			9,294			8,161			30,568
	Other income (expense), net				3,295			4,501			6,580			8,025
	Interest expense				(42	)		(1,249	)		(138	)		(4,365	)
Income before provision for income taxes					25,252			33,516			86,993			96,512
Provision for income taxes					8,838			9,211			23,128			33,779
Net income				$	16,414		$	24,305		$	63,865		$	62,733
Net income-diluted				$	16,414		$	25,147		$	63,865		$	65,392
Net income per share:
	Basic			$	0.09		$	0.13		$	0.34		$	0.33
	Diluted			$	0.08		$	0.12		$	0.33		$	0.30
Weighted average shares outstanding:
	Basic				187,450			190,665			187,823			190,978
	Diluted				193,733			208,408			193,366			215,605
Diluted net income per share computation:
Net income, basic				$	16,414		$	24,305		$	63,865		$	62,733
Interest expense on convertible debentures, net of related GAAP tax effects					-			387			-			1,273
Amortization of debt issuance costs, net of related GAAP tax effects					-			455			-			1,386
Net income, diluted				$	16,414		$	25,147		$	63,865		$	65,392

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
				November 30,			February 28,
					2009			2009
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	389,709		$	515,548
	Investments in debt and equity securities				348,187			147,178
	Accounts receivable, net				137,237			128,669
	Prepaid expenses and other current assets				96,585			99,437
			Total current assets		971,718			890,832
	Property and equipment, net				73,220			67,913
	Goodwill				439,497			438,109
	Identifiable intangibles, net				112,046			122,177
	Investments in debt securities				221,191			183,363
	Other assets, net				38,157			51,242
			Total assets	$	1,855,829		$	1,753,636
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	17,496		$	9,576
	Accrued expenses				72,874			54,123
	Deferred revenue				446,685			382,050
	Other current obligations				878			900
		Total current liabilities			537,933			446,649
	Deferred lease credits				4,067			4,470
	Long term deferred revenue				172,051			161,032
	Other long term obligations				34,578			35,432
Stockholders' equity:
	Common stock				21			21
	Additional paid-in capital				1,370,795			1,281,469
	Retained earnings				114,384			50,519
	Treasury stock, at cost				(382,528	)		(236,283	)
	Accumulated other comprehensive income				4,528			10,327
			Total stockholders' equity		1,107,200			1,106,053
			Total liabilities and stockholders' equity	$	1,855,829		$	1,753,636

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,
			2009			2008			2009			2008
Cash flows from operating activities:
Net income		$	16,414		$	24,305		$	63,865		$	62,733
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		11,595			10,561			33,847			29,486
	Share-based compensation expense		12,557			12,251			34,246			33,682
	Deferred income taxes		9,578			7,031			15,066			27,260
	Excess tax benefits from share-based payment arrangements		(9,524	)		(14,790	)		(27,280	)		(39,246	)
	Gain on sale of equity securities		(4,584	)		-			(8,247	)		(4,996	)
	Gain on repurchase of convertible debentures		-			(4,129	)		-			(4,129	)
	Other		(198	)		941			(205	)		2,308
Changes in operating assets and liabilities net of effects of acquisitions:
	Accounts receivable		(21,742	)		(7,650	)		(1,130	)		13,687
	Prepaid expenses and other current assets		2,923			(7,400	)		7,855			(14,308	)
	Accounts payable		(843	)		1,836			6,944			(6,138	)
	Accrued expenses		14,651			8,774			16,836			18,576
	Deferred revenue		23,446			27,503			35,963			58,217
	Other assets, net		(124	)		(85	)		(402	)		(355	)
	Net cash provided by operating activities		54,149			59,148			177,358			176,777
Cash flows from investing activities:
	Purchase of available-for-sale debt securities		(245,788	)		-			(534,260	)		(331,705	)
	Proceeds from sales and maturities of available-for-sale debt securities		93,089			77,498			299,193			427,314
	Proceeds from sales of available-for-sale equity securities		4,312			-			8,371			5,568
	Acquisitions of businesses, net of cash acquired		-			(101,338	)		-			(148,140	)
	Net purchase of strategic equity investments		(1,368	)		-			(1,368	)		-
	Purchase of developed technologies and other intangible assets		(847	)		(779	)		(2,917	)		(3,121	)
	Purchase of property and equipment		(8,655	)		(4,212	)		(21,318	)		(18,164	)
	Net cash used in investing activities		(159,257	)		(28,831	)		(252,299	)		(68,248	)
Cash flows from financing activities:
	Excess tax benefits from share-based payment arrangements		9,524			14,790			27,280			39,246
	Proceeds from exercise of common stock options		44,985			-			63,574			-
	Repurchase of convertible debentures		-			(280,058	)		-			(280,058	)
	Purchase of treasury stock		(52,289	)		(29,999	)		(146,246	)		(39,365	)
	Payments related to net settlement of employee share-based compensation awards		(6,754	)		(772	)		(9,054	)		16,017
	Structured stock repurchase		-			-			-			1,989
	Proceeds from other borrowings		-			-			-			-
	Payments on other borrowings		-			(48	)		(900	)		(72	)
	Net cash used in financing activities		(4,534	)		(296,087	)		(65,346	)		(262,243	)
Effect of foreign currency exchange rates on cash and cash equivalents			6,299			(1,850	)		14,448			(4,169	)
Net decrease in cash and cash equivalents			(103,343	)		(267,620	)		(125,839	)		(157,883	)
Cash and cash equivalents at beginning of the period			493,052			787,457			515,548			677,720
Cash and cash equivalents at end of period		$	389,709		$	519,837		$	389,709		$	519,837

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						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
			2009			2008			2009			2008
	Cost of revenue	$	916		$	723		$	2,475		$	2,047
	Sales and marketing		3,627			3,352			9,875			9,554
	Research and development		3,239			3,715			9,588			9,769
	General and administration		4,775			4,461			12,308			12,311
	Total share-based compensation expense	$	12,557		$	12,251		$	34,246		$	33,681
Amortization of intangible assets expense included in Consolidated Statements of Operations:
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
			2009			2008			2009			2008
	Cost of revenue	$	989		$	989		$	2,938		$	2,534
	Sales and marketing		2,293			2,301			6,908			6,861
	Research and development		925			1,049			2,776			1,049
	General and administration		811			797			2,411			2,254
	Total amortization of intangible assets expense	$	5,018		$	5,136		$	15,033		$	12,698
Class action litigation settlement expense included in Consolidated Statement of Operations:
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
			2009			2008			2009			2008
	Litigation Settlement	$	8,750			-		$	8,750			-
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
			2009			2008			2009			2008
GAAP net income		$	16,414		$	24,305		$	63,865		$	62,733
Provision for income taxes			8,838			9,211			23,128			33,779
GAAP income before provision for income taxes		$	25,252		$	33,516		$	86,993		$	96,512
Add: Non-cash share-based compensation expense per FAS 123R			12,557			12,251			34,246			33,681
Add: Amortization of intangible assets			5,018			5,136			15,033			12,698
Add: Litigation settlement			8,750			-			8,750			-
Non-GAAP adjusted income before provision for income taxes		$	51,577		$	50,903		$	145,022		$	142,891
Provision for income taxes (1)		$	18,052		$	13,998		$	43,439		$	49,875
Non-GAAP adjusted net income		$	33,525		$	36,905		$	101,583		$	93,016
Non-GAAP adjusted net income-diluted		$	33,525		$	37,747		$	101,583		$	95,646
Non-GAAP adjusted net income per share:
	Basic	$	0.18		$	0.19		$	0.54		$	0.49
	Diluted	$	0.17		$	0.18		$	0.53		$	0.44
Non-GAAP diluted net income per share computation:
Non-GAAP adjusted net income		$	33,525		$	36,905		$	101,583		$	93,016
Interest expense on convertible debentures, net of related GAAP tax effects			-			387			-			1,257
Amortization of debt issuance costs, net of related GAAP tax effects			-			455			-			1,373
Non-GAAP adjusted net income-diluted		$	33,525		$	37,747		$	101,583		$	95,646
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision		$	51,577		$	50,903		$	145,022		$	142,891
	Estimated annual effective tax rate		35	%		28	%		35	%		35	%
Non-GAAP provision for income taxes before discrete tax benefit		$	18,052		$	13,998		$	50,758		$	49,875
	Discrete tax benefit		0			0			7,319			0
Provision for income taxes on Non-GAAP adjusted net income		$	18,052		$	13,998		$	43,439		$	49,875

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
Reconciliation of GAAP results to non-GAAP adjusted results
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
		2009			2008			2009			2008
GAAP gross profit	$	164,748		$	138,796		$	467,861		$	405,878
Add: Non-cash share-based compensation expense per FAS 123R		916			723			2,475			2,047
Add: Amortization of intangible assets		989			989			2,938			2,534
Non-GAAP gross profit	$	166,653		$	140,508		$	473,274		$	410,459
Non-GAAP gross margin		86	%		85	%		86	%		84	%
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
		2009			2008			2009			2008
GAAP operating expenses	$	144,955		$	117,826		$	395,471		$	343,594
Deduct: Non-cash share-based compensation expense per FAS 123R		(11,641	)		(11,528	)		(31,771	)		(31,634	)
Deduct: Amortization of intangible assets		(4,029	)		(4,147	)		(12,095	)		(10,164	)
Deduct: Litigation Settlement		(8,750	)		-			(8,750	)		-
Non-GAAP adjusted operating expenses	$	120,535		$	102,151		$	342,855		$	301,796
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
		2009			2008			2009			2008
GAAP operating income	$	19,793		$	20,970		$	72,390		$	62,284
Add: Non-cash share-based compensation expense per FAS 123R		12,557			12,251			34,246			33,681
Add: Amortization of intangible assets		5,018			5,136			15,033			12,698
Add: Litigation Settlement		8,750			-			8,750			-
Non-GAAP adjusted operating income	$	46,118		$	38,357		$	130,419		$	108,663
Non-GAAP adjusted operating margin		23.7	%		23.2	%		23.6	%		22.3	%

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Red Hat Inc.
Media Contact:
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kschiltz@redhat.com
or
Investor Relations:
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