Red Hat 8K Reports Fourth Quarter and Fiscal Year 2010 Results | SEC 24 Mar 10

Exhibit 99.1

Red Hat Reports Fourth Quarter and Fiscal Year 2010 Results

Annual revenue of $748 million, up 15% year-over-year
Annual subscription revenue of $639 million, up 18% year-over-year
Annual GAAP EPS of $0.45, up 15%; Non-GAAP EPS of $0.71, up 20% year-over-year
Deferred Revenue of $646 million, up 19% year-over-year

RALEIGH, N.C.--(BUSINESS WIRE)--March 24, 2010--Red Hat Inc. (NYSE: 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, 2010.

Total revenue for the quarter was $195.9 million, an increase of 18% from the year ago quarter. Subscription revenue for the quarter was $169.2 million, up 21% year-over-year. For the full year, total revenue was $748.2 million, an increase of 15% over the prior year, and subscription revenue was $638.7 million, up 18% year-over-year.

“With double digit revenue growth and record billings, our fourth quarter capped off a year of solid performance, moving us closer to our milestone revenue goal of a billion dollars,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “As we look forward, we believe that we are well positioned at the confluence of several major technology trends in the data center, including cloud computing, virtualization and middleware. Red Hat’s products directly address these trends and deliver innovative, cost-saving solutions to our customers that we expect will continue to drive our growth.”

GAAP operating income for the fourth quarter and the full fiscal year 2010 was $28.0 million and $100.3 million respectively. GAAP operating margin was 14.3% in the fourth quarter and 13.4% for the full year. After adjusting for stock compensation expense, amortization expense and the charge for our previously announced litigation settlement, as detailed in the tables below, non-GAAP operating income for the quarter was $46.6 million, or a 23.8% operating margin, and full year non-GAAP operating income was $177.0 million. Full year non-GAAP operating margin was 23.7%, an increase of 100 basis points from the prior year.

GAAP net income for the quarter was $23.4 million, or $0.12 per diluted share, compared with $16.4 million, or $0.08 per diluted share, for the prior quarter and $16.0 million, or $0.08 per diluted share, in the year ago quarter. Non-GAAP adjusted net income for the quarter was $36.5 million, or $0.19 per diluted share, after adjusting for stock compensation expense and amortization expense, as detailed in the tables below. This compares to non-GAAP adjusted net income of $33.5 million, or $0.17 per diluted share in the prior quarter and $28.5 million, or $0.15 per diluted share in the year ago quarter.

For the full year, GAAP net income was $87.3 million or $0.45 per diluted share, compared with $78.7 million or $0.39 per diluted share in the prior year. After adjusting for stock compensation expense, amortization expense and the charge for our previously announced litigation settlement, as detailed in the tables below, non-GAAP adjusted net income for the year was $138.1 million or $0.71 per diluted share, compared to $121.5 million and $0.59 per diluted share for the fiscal year ended February 28, 2009.

GAAP operating cash flow totaled $77.9 million for the quarter and $255.2 million for the full year, after payment of $8.8 million for our previously announced litigation settlement. At year end, the company’s total deferred revenue balance was $645.9 million, an increase of 19% on a year-over-year basis and 4% sequentially. Cash and investments at February 28, 2010 totaled $970.2 million after repurchasing approximately $90.1 million, or 3.1 million shares, of common stock in the quarter. For the full fiscal year, Red Hat repurchased $236.4 million, or 10 million shares, of common stock. The diluted share count for the full year is 193.5 million shares, down 8.4% from the prior year.

“This year has been about consistent execution in the most difficult economic conditions in our lifetime. We managed costs carefully while continuing to invest significantly. We added over 350 employees consistently throughout the year, principally in engineering and sales. We invested in sales training, systems and new equipment while holding the line on travel and other discretionary costs. As a result, we grew annual non-GAAP operating income by 19% and improved operating margin by 100 basis points for the full year,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “We have had consistently strong cash flow for some time, but the fourth quarter was exceptional with GAAP operating cash flow of $77.9 million, up 31% year-over-year, even after the one time litigation payment of $8.8 million.”

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 an S&P 500 company, 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.





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,
				2010			2009			2010			2009
Revenue:

		Subscriptions		$	169,158		$	139,356		$	638,654		$	541,210
		Training and services			26,710			26,865			109,582			111,362


			Total subscription, training and services revenue		195,868			166,221			748,236			652,572

Cost of revenue:

		Subscriptions			11,393			9,819			43,426			37,267
		Training and services			17,945			15,834			70,419			68,859


			Total cost of subscription, training and services revenue		29,338			25,653			113,845			106,126


	Total gross profit				166,530			140,568			634,391			546,446

Operating expense:
	Sales and marketing				70,462			61,202			272,705			238,552
	Research and development				38,293			34,993			148,360			130,177
	General and administrative				29,816			24,136			104,227			95,196
	Litigation Settlement				-			-			8,750			-

		Total operating expense			138,571			120,331			534,042			463,925

Income from operations					27,959			20,237			100,349			82,521
	Interest income				2,220			5,904			10,381			36,473
	Other income (expense), net				4,355			(688	)		10,936			7,336
	Interest expense				(26	)		(433	)		(164	)		(4,798	)


Income before provision for income taxes					34,508			25,020			121,502			121,532
Provision for income taxes					11,120			9,032			34,249			42,811

Net income				$	23,388		$	15,988		$	87,253		$	78,721

Net income-diluted				$	23,388		$	16,210		$	87,253		$	81,597

Net income per share:
	Basic			$	0.12		$	0.08		$	0.46		$	0.41
	Diluted			$	0.12		$	0.08		$	0.45		$	0.39

Weighted average shares outstanding:
	Basic				187,911			190,146			187,845			190,772
	Diluted				193,822			197,820			193,546			211,344

Diluted net income per share computation:
Net income, basic				$	23,388		$	15,988		$	87,253		$	78,721
Interest expense on convertible debentures, net of related GAAP tax effects					-			142			-			1,413
Amortization of debt issuance costs, net of related GAAP tax effects					-			80			-			1,463

Net income, diluted				$	23,388		$	16,210		$	87,253		$	81,597





RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)


ASSETS
				February 28,			February 28,
				2010			2009
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	388,118		$	515,548
	Investments in debt and equity securities				372,656			147,178
	Accounts receivable, net				139,436			128,669
	Prepaid expenses and other current assets				102,909			99,437

			Total current assets		1,003,119			890,832

	Property and equipment, net				71,708			67,913
	Goodwill				438,749			438,109
	Identifiable intangibles, net				108,213			122,177
	Investments in debt securities				209,411			183,363
	Other assets, net				39,672			51,242

			Total assets	$	1,870,872		$	1,753,636

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	16,483		$	9,576
	Accrued expenses				68,334			54,123
	Deferred revenue				480,572			382,050
	Other current obligations				878			900

		Total current liabilities			566,267			446,649

	Deferred lease credits				4,184			4,470
	Long term deferred revenue				165,288			161,032
	Other long term obligations				24,081			35,432
Stockholders' equity:
	Common stock				22			21
	Additional paid-in capital				1,444,848			1,281,469
	Retained earnings				137,772			50,519
	Treasury stock, at cost				(472,646	)		(236,283	)
	Accumulated other comprehensive income				1,056			10,327

			Total stockholders' equity		1,111,052			1,106,053

			Total liabilities and stockholders' equity	$	1,870,872		$	1,753,636





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,
			2010			2009			2010			2009

Cash flows from operating activities:
Net income			$	23,388		$	15,988		$	87,253		$	78,721
Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		12,014			10,824			45,861			40,309
		Share-based compensation expense		14,042			14,633			48,288			48,315
		Deferred income taxes		5,570			11,719			20,636			38,979
		Excess tax benefits from share-based payment arrangements		(8,289	)		(11,891	)		(35,569	)		(51,137	)
		(Gain) Loss on sale of equity securities		(4,409	)		1,148			(12,656	)		(3,848	)
		Gain on repurchase of convertible debentures		-			-			-			(4,129	)
		Other		1,453			1,105			1,248			3,413
Changes in operating assets and liabilities net of effects of acquisitions:
		Accounts receivable		(6,159	)		(16,029	)		(7,290	)		(2,341	)
		Prepaid expenses and other current assets		(4,709	)		(4,660	)		3,147			(18,968	)
		Accounts payable		(375	)		(1,138	)		6,569			(7,275	)
		Accrued expenses		(1,414	)		(1,520	)		15,423			17,056
		Deferred revenue		46,662			39,644			82,625			97,861
		Other assets, net		119			(159	)		(286	)		(517	)

		Net cash provided by operating activities		77,893			59,664			255,249			236,439

Cash flows from investing activities:
	Purchase of available-for-sale debt securities			(132,630	)		(65,105	)		(666,890	)		(396,810	)
	Proceeds from sales and maturities of available-for-sale debt securities			113,321			286,701			412,514			714,015
	Proceeds from sales of available-for-sale equity securities			4,681			-			13,053			5,568
	Acquisitions of businesses, net of cash acquired			-			-			-			(148,140	)
	Net purchase of strategic equity investments			(400	)		-			(1,768	)		-
	Purchase of developed technologies and other intangible assets			(1,775	)		(811	)		(4,692	)		(3,932	)
	Purchase of property and equipment			(7,103	)		(6,321	)		(28,420	)		(24,485	)

		Net cash used in investing activities		(23,906	)		214,464			(276,203	)		146,216

Cash flows from financing activities:
	Excess tax benefits from share-based payment arrangements			8,289			11,891			35,569			51,137
	Proceeds from exercise of common stock options			39,758			1,117			103,332			18,355
	Repurchase of convertible debentures			-			(285,500	)		-			(565,558	)
	Purchase of treasury stock			(90,147	)		(3,973	)		(236,393	)		(42,319	)
	Payments related to net settlement of employee share-based compensation awards			(2,801	)		(457	)		(11,855	)		(2,698	)
	Structured stock repurchase			-			-			-			1,989
	Payments on other borrowings			-			-			(900	)		(69	)

		Net cash used in financing activities		(44,901	)		(276,922	)		(110,247	)		(539,163	)

Effect of foreign currency exchange rates on cash and cash equivalents				(10,677	)		(1,495	)		3,771			(5,664	)
Net decrease in cash and cash equivalents				(1,591	)		(4,289	)		(127,430	)		(162,172	)
Cash and cash equivalents at beginning of the period				389,709			519,837			515,548			677,720

Cash and cash equivalents at end of period			$	388,118		$	515,548		$	388,118		$	515,548





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						Twelve Months Ended
		February 28,			February 28,			February 28,			February 28,
		2010			2009			2010			2009

	Cost of revenue	$	1,155		$	1,004		$	3,630		$	3,065
	Sales and marketing		4,166			4,239			14,041			13,826
	Research and development		4,026			4,251			13,614			14,027
	General and administration		4,696			5,139			17,004			17,397
	Total share-based compensation expense	$	14,043		$	14,633		$	48,289		$	48,315


Amortization of intangible assets expense included in Consolidated Statements of Operations:

		Three Months Ended						Twelve Months Ended
		February 28,			February 28,			February 28,			February 28,
		2010			2009			2010			2009

	Cost of revenue	$	724		$	969		$	3,662		$	3,503
	Sales and marketing		2,148			2,187			9,056			9,048
	Research and development		925			953			3,702			2,003
	General and administration		816			797			3,228			3,053
	Total amortization of intangible assets expense	$	4,613		$	4,906		$	19,648		$	17,607


Class action litigation settlement expense included in Consolidated Statement of Operations:

		Three Months Ended						Twelve Months Ended
		February 28,			February 28,			February 28,			February 28,
		2010			2009			2010			2009

	Litigation Settlement		-			-		$	8,750			-



		Three Months Ended						Twelve Months Ended
		February 28,			February 28,			February 28,			February 28,
		2010			2009			2010			2009

GAAP net income		$	23,388		$	15,988		$	87,253		$	78,721

Provision for income taxes			11,120			9,032			34,249			42,811

GAAP income before provision for income taxes		$	34,508		$	25,020		$	121,502		$	121,532

Add: Non-cash share-based compensation expense per ASC 718			14,043			14,633			48,289			48,315
Add: Amortization of intangible assets			4,613			4,906			19,648			17,607
Add: Litigation settlement			-			-			8,750			-

Non-GAAP adjusted income before provision for income taxes		$	53,164		$	44,559		$	198,189		$	187,454

Provision for income taxes (1)		$	16,624		$	16,086		$	60,065		$	65,984

Non-GAAP adjusted net income		$	36,540		$	28,473		$	138,124		$	121,470

Non-GAAP adjusted net income-diluted		$	36,540		$	28,695		$	138,124		$	124,346

Non-GAAP adjusted net income per share:
	Basic	$	0.19		$	0.15		$	0.74		$	0.64
	Diluted	$	0.19		$	0.15		$	0.71		$	0.59


Non-GAAP diluted net income per share computation:
Non-GAAP adjusted net income		$	36,540		$	28,473		$	138,124		$	121,470
Interest expense on convertible debentures, net of related GAAP tax effects			-			142			-			1,413
Amortization of debt issuance costs, net of related GAAP tax effects			-			80			-			1,463

Non-GAAP adjusted net income-diluted		$	36,540		$	28,695		$	138,124		$	124,346



(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision		$	53,164		$	44,559		$	198,189		$	187,454
	Estimated annual effective tax rate		31.3	%		36.1	%		34.0	%		35.2	%
Non-GAAP provision for income taxes before discrete tax benefit		$	16,624		$	16,086		$	67,384		$	65,984
	Discrete tax benefit		-			-			7,319			-
Provision for income taxes on Non-GAAP adjusted net income		$	16,624		$	16,086		$	60,065		$	65,984





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						Twelve Months Ended
	February 28,			February 28,			February 28,			February 28,
	2010			2009			2010			2009

GAAP gross profit	$	166,530		$	140,568		$	634,391		$	546,446

Add: Non-cash share-based compensation expense per ASC 718		1,155			1,004			3,630			3,065
Add: Amortization of intangible assets		724			969			3,662			3,503

Non-GAAP gross profit	$	168,409		$	142,541		$	641,683		$	553,014

Non-GAAP gross margin		86	%		86	%		86	%		85	%


	Three Months Ended						Twelve Months Ended
	February 28,			February 28,			February 28,			February 28,
	2010			2009			2010			2009

GAAP operating expenses	$	138,571		$	120,331		$	534,042		$	463,925

Deduct: Non-cash share-based compensation expense per ASC 718		(12,888	)		(13,629	)		(44,659	)		(45,250	)
Deduct: Amortization of intangible assets		(3,889	)		(3,937	)		(15,986	)		(14,104	)
Deduct: Litigation Settlement		-			-			(8,750	)		-

Non-GAAP adjusted operating expenses	$	121,794		$	102,765		$	464,647		$	404,571


	Three Months Ended						Twelve Months Ended
	February 28,			February 28,			February 28,			February 28,
	2010			2009			2010			2009

GAAP operating income	$	27,959		$	20,237		$	100,349		$	82,521

Add: Non-cash share-based compensation expense per ASC 718		14,043			14,633			48,289			48,315
Add: Amortization of intangible assets		4,613			4,906			19,648			17,607
Add: Litigation Settlement		-			-			8,750			-

Non-GAAP adjusted operating income	$	46,615		$	39,776		$	177,036		$	148,443

Non-GAAP adjusted operating margin		23.8	%		23.9	%		23.7	%		22.7	%

CONTACT:
Red Hat Inc.
Media Contact:
Kara Schiltz, 919-301-3002
kschiltz@redhat.com
or
Investor Relations:
Tom McCallum, 919-754-4630
tmccallum@redhat.com

Red Hat Inactive 8-KRed Hat Reports Fourth Quarter and Fiscal Year 2010 Results