Red Hat 8-K Red Hat Reports Second Quarter Results

Exhibit 99.1

Red Hat Reports Second Quarter Results

• Second quarter revenue of $281 million, up 28% year-over-year
• Second quarter GAAP EPS of $0.20, up 67% year-over-year; non-GAAP EPS of $0.29, up 53% year-over-year
• Second quarter deferred revenue of $813 million, up 25% year-over-year
• Second quarter operating cash flow of $77 million, up 20% year-over-year

RALEIGH, N.C.--(BUSINESS WIRE)--September 21, 2011--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2012 second quarter ended August 31, 2011.

Total revenue for the quarter was $281.3 million, an increase of 28% from the year ago quarter. Subscription revenue for the quarter was $238.3 million, up 28% year-over-year.

“The combination of strong sales execution and customer demand led to second quarter revenue that was above our guidance and represented our fourth straight quarter of accelerating revenue growth,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “We continued to win and strengthen relationships with enterprise customers who partner with Red Hat to reduce costs while modernizing their IT infrastructure to enable applications to run on bare metal, virtualization and in the cloud. Based on the strong first half results, we believe Red Hat remains well positioned to finish fiscal 2012 as the first billion dollar open source software vendor.”

GAAP operating income for the second quarter was $52.5 million, or 18.7% operating margin. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP operating income for the second quarter was $76.4 million, up 41% year-over-year. Non-GAAP operating margin was 27.2%, up 250 basis points from the year ago quarter.

Net income for the quarter was $40.0 million, or $0.20 per diluted share, compared with $23.7 million, or $0.12 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses as detailed in the tables below, non-GAAP net income for the quarter was $56.5 million, or $0.29 per diluted share, as compared to $36.8 million, or $0.19 per diluted share, in the year ago quarter. Both GAAP and non-GAAP net income for the quarter included a discrete tax benefit of $2.1 million, approximately $0.01 per diluted share. Excluding this tax benefit, GAAP earnings per share would have been $0.19 and non-GAAP earnings per share would have been $0.28 for the quarter.

Operating cash flow was $77.1 million for the second quarter, as compared to $64.3 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $813.2 million, an increase of 25% on a year-over-year basis. Total cash, cash equivalents and investments as of August 31, 2011 was $1.3 billion.

“Our investments in sales and R&D continued to pay off, producing market share gains, higher revenue and 30% year-over-year billings growth,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “Our productivity continued to improve as evidenced by non-GAAP operating income growth of 41% and cash flow growth of 20% in Q2. Moreover, year-to-date non-GAAP operating income grew 35% and operating cash flow grew 34% compared to the first half of last fiscal 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, the world's leading provider of open source solutions and an S&P 500 company, is headquartered in Raleigh, NC with over 70 offices spanning the globe. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, 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; the effects of industry consolidation; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 the earthquakes and floods, including events in Japan. 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., Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat 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				Six Months Ended
				August 31,		August 31,		August 31,		August 31,
				2011		2010		2011		2010
Revenue:
		Subscriptions		$	238,337	$	186,183	$	463,870	$	365,259
		Training and services			42,983		33,578		82,196		63,646
			Total subscription, training and services revenue		281,320		219,761		546,066		428,905
Cost of revenue:
		Subscriptions			16,596		12,256		31,835		24,920
		Training and services			30,043		23,446		57,251		44,019
			Total cost of subscription, training and services revenue		46,639		35,702		89,086		68,939
	Total gross profit				234,681		184,059		456,980		359,966
Operating expense:
	Sales and marketing				99,730		79,434		197,056		153,998
	Research and development				51,488		42,361		99,776		83,019
	General and administrative				30,985		28,193		62,311		54,638
		Total operating expense			182,203		149,988		359,143		291,655
Income from operations					52,478		34,071		97,837		68,311
	Interest income				2,127		1,775		4,063		3,438
	Other income, net				326		548		59		1,677
Income before provision for income taxes					54,931		36,394		101,959		73,426
Provision for income taxes					14,963		12,738		29,542		25,699
Net income				$	39,968	$	23,656	$	72,417	$	47,727
Net income-diluted				$	39,968	$	23,656	$	72,417	$	47,727
Net income per share:
	Basic			$	0.21	$	0.13	$	0.38	$	0.25
	Diluted			$	0.20	$	0.12	$	0.37	$	0.25
Weighted average shares outstanding:
	Basic				192,937		189,027		193,046		188,477
	Diluted				196,171		193,560		196,428		193,457

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
				August 31,			February 28,
				2011			2011
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	737,458		$	642,630
	Investments in debt and equity securities				199,781			217,970
	Accounts receivable, net				175,703			184,741
	Deferred tax assets, net				79,707			75,720
	Prepaid expenses				66,557			62,364
	Other current assets				1,583			1,133
			Total current assets		1,260,789			1,184,558
	Property and equipment, net				81,478			75,558
	Goodwill				465,558			463,673
	Identifiable intangibles, net				102,363			109,932
	Investments in debt securities				363,862			331,791
	Other assets, net				34,480			33,810
			Total assets	$	2,308,530		$	2,199,322
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	16,142		$	16,285
	Accrued expenses				88,736			90,229
	Deferred revenue				601,627			572,637
	Other current obligations				457			650
		Total current liabilities			706,962			679,801
	Deferred lease credits				5,056			5,215
	Long term deferred revenue				211,527			199,617
	Other long term obligations				23,814			23,990
Stockholders' equity:
	Common stock				22			22
	Additional paid-in capital				1,664,433			1,610,238
	Retained earnings				317,467			245,050
	Treasury stock, at cost				(619,744	)		(562,792	)
	Accumulated other comprehensive loss				(1,007	)		(1,819	)
			Total stockholders' equity		1,361,171			1,290,699
			Total liabilities and stockholders' equity	$	2,308,530		$	2,199,322

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2011			2010			2011			2010
Cash flows from operating activities:
Net income	$	39,968		$	23,656		$	72,417		$	47,727
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,147			11,689			25,886			23,411
Share-based compensation expense		18,753			15,675			34,940			28,849
Deferred income taxes		8,155			13,434			19,210			21,786
Excess tax benefits from share-based payment arrangements		(8,112	)		(10,192	)		(16,672	)		(21,199	)
Gain on sale of available-for-sale equity securities		(663	)		(601	)		(1,307	)		(1,117	)
Other		423			319			990			116
Changes in operating assets and liabilities:
Accounts receivable		(20,457	)		(6,794	)		11,585			12,732
Prepaid expenses		65			(4,153	)		(3,228	)		(4,744	)
Accounts payable		(286	)		2,187			(376	)		(2,882	)
Accrued expenses		3,614			6,712			(235	)		8,252
Deferred revenue		22,851			13,439			24,121			12,381
Other		(357	)		(1,087	)		(19	)		(384	)
Net cash provided by operating activities		77,101			64,284			167,312			124,928
Cash flows from investing activities:
Purchase of available-for-sale debt securities		(220,436	)		(110,021	)		(401,286	)		(220,364	)
Proceeds from sales and maturities of available-for-sale debt securities		208,693			215,811			381,276			414,129
Proceeds from sales of available-for-sale equity securities		681			609			1,346			1,157
Purchase of strategic equity investments		(1,000	)		-			(1,000	)		-
Purchase of developed technologies and other intangible assets		(1,059	)		(1,324	)		(3,602	)		(2,945	)
Purchase of property and equipment		(11,523	)		(8,371	)		(20,179	)		(15,093	)
Net cash provided by (used in) investing activities		(24,644	)		96,704			(43,445	)		176,884
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements		8,112			10,192			16,672			21,199
Proceeds from exercise of common stock options		3,370			18,011			8,413			55,699
Purchase of treasury stock		(38,006	)		(4,994	)		(56,952	)		(79,355	)
Payments related to net settlement of employee share-based compensation awards		(2,952	)		(1,135	)		(11,985	)		(8,190	)
Payments on other borrowings		(94	)		-			(688	)		(877	)
Net cash provided by (used in) financing activities		(29,570	)		22,074			(44,540	)		(11,524	)
Effect of foreign currency exchange rates on cash and cash equivalents		4,348			7,795			15,501			(9,179	)
Net increase in cash and cash equivalents		27,235			190,857			94,828			281,109
Cash and cash equivalents at beginning of the period		710,223			478,370			642,630			388,118
Cash and cash equivalents at end of period	$	737,458		$	669,227		$	737,458		$	669,227

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						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
		2011			2010			2011			2010
	Cost of revenue	$	1,842		$	1,370		$	3,631		$	2,561
	Sales and marketing		6,101			4,771			11,672			8,547
	Research and development		4,883			4,080			9,077			7,435
	General and administration		5,927			5,454			10,560			10,306
	Total share-based compensation expense	$	18,753		$	15,675		$	34,940		$	28,849
Amortization of intangible assets expense included in Consolidated Statements of Operations:
		Three Months Ended						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
		2011			2010			2011			2010
	Cost of revenue	$	1,216		$	704		$	2,195		$	1,408
	Sales and marketing		1,958			2,075			3,918			4,161
	Research and development		1,157			925			2,313			1,850
	General and administration		865			833			1,711			1,655
	Total amortization of intangible assets expense	$	5,196		$	4,537		$	10,137		$	9,074
		Three Months Ended						Six Months Ended
		August 31,			August 31,			August 31,			August 31,
		2011			2010			2011			2010
GAAP net income		$	39,968		$	23,656		$	72,417		$	47,727
Provision for income taxes			14,963			12,738			29,542			25,699
GAAP income before provision for income taxes		$	54,931		$	36,394		$	101,959		$	73,426
Add: Non-cash share-based compensation expense			18,753			15,675			34,940			28,849
Add: Amortization of intangible assets			5,196			4,537			10,137			9,074
Non-GAAP adjusted income before provision for income taxes		$	78,880		$	56,606		$	147,036		$	111,349
Provision for income taxes (1)			22,388			19,812			43,516			38,972
Non-GAAP adjusted net income		$	56,492		$	36,794		$	103,520		$	72,377
Non-GAAP adjusted net income-diluted		$	56,492		$	36,794		$	103,520		$	72,377
Non-GAAP adjusted net income per share:
	Basic	$	0.29		$	0.19		$	0.54		$	0.38
	Diluted	$	0.29		$	0.19		$	0.53		$	0.37
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision		$	78,880		$	56,606		$	147,036		$	111,349
	Estimated annual effective tax rate		31	%		35	%		31	%		35	%
Non-GAAP provision for income taxes before discrete tax benefit		$	24,453		$	19,812		$	45,581		$	38,972
	Discrete tax benefit		2,065			-			2,065		-
Provision for income taxes on Non-GAAP adjusted net income		$	22,388		$	19,812		$	43,516		$	38,972

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						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2011			2010			2011			2010
GAAP gross profit	$	234,681		$	184,059		$	456,980		$	359,966
Add: Non-cash share-based compensation expense		1,842			1,370			3,631			2,561
Add: Amortization of intangible assets		1,216			704			2,195			1,408
Non-GAAP gross profit	$	237,739		$	186,133		$	462,806		$	363,935
Non-GAAP gross margin		85	%		85	%		85	%		85	%
	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2011			2010			2011			2010
GAAP operating expenses	$	182,203		$	149,988		$	359,143		$	291,655
Deduct: Non-cash share-based compensation expense		(16,911	)		(14,305	)		(31,309	)		(26,288	)
Deduct: Amortization of intangible assets		(3,980	)		(3,833	)		(7,942	)		(7,666	)
Non-GAAP adjusted operating expenses	$	161,312		$	131,850		$	319,892		$	257,701
	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2011			2010			2011			2010
GAAP operating income	$	52,478		$	34,071		$	97,837		$	68,311
Add: Non-cash share-based compensation expense		18,753			15,675			34,940			28,849
Add: Amortization of intangible assets		5,196			4,537			10,137			9,074
Non-GAAP adjusted operating income	$	76,427		$	54,283		$	142,914		$	106,234
Non-GAAP adjusted operating margin		27.2	%		24.7	%		26.2	%		24.8	%

CONTACT:
Red Hat Inc.
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lday@redhat.com
or
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