Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
May 31, 2017 | Jun. 30, 2017 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | May 31, 2017 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | RHT | |
Entity Registrant Name | RED HAT INC | |
Entity Central Index Key | 1,087,423 | |
Current Fiscal Year End Date | --02-28 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 177,459,657 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | [1] |
Current assets: | |||
Cash and cash equivalents | $ 1,230,457 | $ 1,090,808 | |
Investments in debt securities, short-term | 408,026 | 369,983 | |
Accounts receivable, net of allowances for doubtful accounts of $3,247 and $2,791, respectively | 429,908 | 634,821 | |
Prepaid expenses | 192,551 | 200,609 | |
Other current assets | 40,707 | 19,481 | |
Total current assets | 2,301,649 | 2,315,702 | |
Property and equipment, net of accumulated depreciation and amortization of $247,389 and $231,533, respectively | 195,281 | 189,629 | |
Goodwill | 1,047,038 | 1,040,709 | |
Identifiable intangibles, net | 133,365 | 137,767 | |
Investments in debt securities, long-term | 671,098 | 672,440 | |
Deferred tax assets, net | 92,829 | 104,833 | |
Other assets, net | 71,176 | 74,105 | |
Total assets | 4,512,436 | 4,535,185 | |
Current liabilities: | |||
Accounts payable and accrued expenses | 303,668 | 376,957 | |
Deferred revenue, short-term | 1,486,409 | 1,512,762 | |
Other current obligations | 1,303 | 1,354 | |
Total current liabilities | 1,791,380 | 1,891,073 | |
Deferred revenue, long-term | 567,755 | 557,194 | |
Convertible notes | 751,173 | 745,633 | |
Other long-term obligations | 96,584 | 93,965 | |
Commitments and contingencies (NOTES 11 and 12) | |||
Stockholders' equity: | |||
Preferred stock, $0.0001 per share par value, 5,000,000 shares authorized, none outstanding | |||
Common stock, $0.0001 per share par value, 300,000,000 shares authorized, 237,789,357 and 236,804,594 shares issued, and 177,520,153 and 176,901,936 shares outstanding at May 31, 2017 and February 28, 2017, respectively | 24 | 24 | |
Additional paid-in capital | 2,295,123 | 2,294,462 | |
Retained earnings | 1,426,181 | 1,352,991 | |
Treasury stock at cost, 60,269,204 and 59,902,658 shares at May 31, 2017 and February 28, 2017, respectively | (2,350,044) | (2,311,805) | |
Accumulated other comprehensive loss | (65,740) | (88,352) | |
Total stockholders' equity | 1,305,544 | 1,247,320 | |
Total liabilities and stockholders' equity | $ 4,512,436 | $ 4,535,185 | |
[1] | Derived from audited financial statements. |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | [1] |
Statement of Financial Position [Abstract] | |||
Accounts receivable, allowances for doubtful accounts | $ 3,247 | $ 2,791 | |
Property and equipment, accumulated depreciation and amortization | $ 247,389 | $ 231,533 | |
Preferred stock, per share par value | $ 0.0001 | $ 0.0001 | |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | |
Preferred stock, outstanding | 0 | 0 | |
Common stock, per share par value | $ 0.0001 | $ 0.0001 | |
Common stock, shares authorized | 300,000,000 | 300,000,000 | |
Common stock, shares issued | 237,789,357 | 236,804,594 | |
Common stock, shares outstanding | 177,520,153 | 176,901,936 | |
Treasury stock, shares | 60,269,204 | 59,902,658 | |
[1] | Derived from audited financial statements. |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Revenue: | ||
Subscriptions | $ 596,508 | $ 501,665 |
Training and services | 80,288 | 66,234 |
Total subscription and training and services revenue | 676,796 | 567,899 |
Cost of subscription and training and services revenue: | ||
Cost of subscriptions | 43,633 | 36,545 |
Cost of training and services | 57,063 | 47,503 |
Total cost of subscription and training and services revenue | 100,696 | 84,048 |
Gross profit | 576,100 | 483,851 |
Operating expense: | ||
Sales and marketing | 296,459 | 243,248 |
Research and development | 137,163 | 115,016 |
General and administrative | 54,870 | 50,224 |
Total operating expense | 488,492 | 408,488 |
Income from operations | 87,608 | 75,363 |
Interest income | 3,993 | 3,430 |
Interest expense | 6,085 | 5,887 |
Other income (expense), net | (586) | (553) |
Income before provision for income taxes | 84,930 | 72,353 |
Provision for income taxes | 11,740 | 11,169 |
Net income | $ 73,190 | $ 61,184 |
Basic net income per common share | $ 0.41 | $ 0.34 |
Diluted net income per common share | $ 0.40 | $ 0.33 |
Weighted average shares outstanding: | ||
Basic | 177,243 | 181,168 |
Diluted | 181,810 | 184,187 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 73,190 | $ 61,184 |
Other comprehensive income (loss): | ||
Change in foreign currency translation adjustment | 22,670 | 5,917 |
Available-for-sale securities: | ||
Unrealized gain on available-for-sale securities during the period | 164 | 1,238 |
Reclassification for gain realized on available-for-sale securities, reported in Other income (expense), net | (9) | |
Tax benefit (expense) | (222) | (444) |
Net change in available-for-sale securities (net of tax) | (58) | 785 |
Total other comprehensive income | 22,612 | 6,702 |
Comprehensive income | $ 95,802 | $ 67,886 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | ||
May 31, 2017 | May 31, 2016 | ||
Cash flows from operating activities: | |||
Net income | $ 73,190 | $ 61,184 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 21,817 | 20,702 | |
Amortization of debt discount and transaction costs | 5,540 | 5,365 | |
Share-based compensation expense | 43,718 | 41,275 | |
Deferred income taxes | 7,917 | (2,152) | |
Net amortization of bond premium on debt securities available for sale | 2,436 | 3,540 | |
Other | 961 | (765) | |
Changes in operating assets and liabilities: | |||
Accounts receivable | 208,761 | 190,330 | |
Prepaid expenses | (7,708) | (9,373) | |
Accounts payable and accrued expenses | (55,338) | (30,186) | |
Deferred revenue | (45,717) | (46,093) | |
Other | 2,295 | (1,530) | |
Net cash provided by operating activities | 257,872 | 232,297 | |
Cash flows from investing activities: | |||
Purchase of investment in debt securities available for sale | (149,524) | (134,601) | |
Proceeds from maturities of investment in debt securities available for sale | 112,041 | 99,033 | |
Proceeds from sales of investment in debt securities available for sale | 14,324 | 18,149 | |
Purchase of developed software and other intangible assets | (1,774) | (2,868) | |
Purchase of property and equipment | (25,900) | (17,653) | |
Other | (111) | ||
Net cash used in investing activities | (50,833) | (38,051) | |
Cash flows from financing activities: | |||
Proceeds from exercise of common stock options | 2,968 | 1,380 | |
Proceeds from employee stock purchase program | 11,761 | ||
Payments related to net settlement of share-based compensation awards | (41,010) | (31,079) | |
Purchase of treasury stock | (61,987) | (66,478) | |
Payments on other borrowings | (443) | (445) | |
Other | 500 | ||
Net cash used in financing activities | (88,711) | (96,122) | |
Effect of foreign currency exchange rates on cash and cash equivalents | 21,321 | 5,663 | |
Net increase in cash and cash equivalents | 139,649 | 103,787 | |
Cash and cash equivalents at beginning of the period | 1,090,808 | [1] | 927,778 |
Cash and cash equivalents at end of the period | $ 1,230,457 | $ 1,031,565 | |
[1] | Derived from audited financial statements. |
Company
Company | 3 Months Ended |
May 31, 2017 | |
Accounting Policies [Abstract] | |
Company | NOTE 1—Company Red Hat, Inc., incorporated in Delaware, together with its subsidiaries (“Red Hat” or the “Company”) is a leading global provider of open source software solutions, using a community-powered approach to develop and offer reliable and high-performing operating system, virtualization, management, middleware, cloud, mobile and storage technologies. Open source software is an alternative to proprietary software and represents a different model for the development and licensing of commercial software code than that typically used for proprietary software. Because open source software code is often freely shared, there are customarily no licensing fees for the use of open source software. Therefore, the Company does not recognize revenue from the licensing of the code itself. The Company provides value to its customers through the development, aggregation, integration, testing, certification, delivery, maintenance, enhancement and support of its Red Hat technologies, and by providing a level of performance, scalability, flexibility, reliability and security for the technologies the Company packages and distributes. Moreover, because communities of developers not employed by the Company assist with the creation of the Company’s open source offerings, opportunities for further innovation of the Company’s offerings are supplemented by these communities. The Company derives its revenue and generates cash from customers primarily from two sources: (i) subscription revenue and (ii) training and services revenue. These arrangements typically involve subscriptions to Red Hat technologies. The arrangements with the Company’s customers that produce this revenue and cash are explained in further detail in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
May 31, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 2—Summary of Significant Accounting Policies Basis of presentation The unaudited interim consolidated financial statements as of and for the three months ended May 31, 2017 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the consolidated balance sheets, consolidated operating results, consolidated other comprehensive income and consolidated cash flows for the periods presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Operating results for the three months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2018. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. These unaudited financial statements should be read in conjunction with the Company’s Consolidated Financial Statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. There have been no changes to the Company’s significant accounting policies from those described in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. These unaudited financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K. Certain amounts for the three months ended May 31, 2016 have been reclassified to conform to the current year presentation. Consolidation policy The accompanying Consolidated Financial Statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. There are no foreign currency exchange restrictions that are significant to the Company’s foreign subsidiaries. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from such estimates. Accounting pronouncements being evaluated In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers The Company has substantially completed its preliminary assessment of the potential impact that the implementation of this updated standard will have on its consolidated financial statements. With respect to the Company’s software subscription offerings, the Company provides value to its customers through continuous aggregation, integration, testing, certification, maintenance, enhancement and support of the open source technologies that it distributes. The Company currently recognizes subscription revenue ratably over the subscription period. Under the updated standard, these subscription attributes represent a series of performance obligations that are delivered over time, primarily on a stand-ready basis (for example, attributes such as updates, upgrades, and support are not forced upon subscribers but rather made available to subscribers). As a result, the Company believes that its subscription revenue meets the criteria for revenue recognition over time and will continue to be recognized ratably under the updated standard. The Company also offers professional consulting and training services that are designed to help customers derive additional value from Red Hat technologies. Under the updated guidance, revenue from professional consulting and training services that were previously sold on a standalone basis will continue to be recognized over time as the Company satisfies its performance obligations by delivering and transferring such services to the customer. With respect to customer contracts with multiple elements (such as software subscriptions and professional consulting and training services), under the current standard the Company allocates total contract revenue to each element’s relative fair value when the Company can demonstrate sufficient vendor-specific objective evidence (“VSOE”) of the fair value of at least those elements that are undelivered. For multiple-element contracts in which one or more of the undelivered elements lacks VSOE, the Company defers recognition of any revenue until the elements lacking VSOE have been delivered. However, under the updated standard, the Company will be required to allocate total contract revenue to each element (referred to as a distinct performance obligation under the updated standard) based on either an established or estimated standalone selling price. The Company would then recognize the allocated revenue as each element (performance obligation) is delivered. Because the Company has historically established VSOE for most of its offerings and as a result has not been required to defer a significant amount of revenue due to insufficient VSOE, the Company does not anticipate the updated standard’s requirement to establish or estimate a standalone selling price, rather than defer revenues in the absence of VSOE, to have a significant impact on the Company’s financial statements. The Company continues to assess the impact of the updated guidance, including for example, any potential changes to and investments in the Company’s policies, processes, systems and internal controls over financial reporting that may be required to comply with new guidance related to variable consideration, contract modifications, allocation of discounts and expanded disclosures. The Company has not yet finalized its decision with respect to transition method. |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
May 31, 2017 | |
Equity [Abstract] | |
Stockholders' Equity | NOTE 3—Stockholders’ Equity The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2017 (in thousands): Common Additional Retained Treasury Accumulated Total Equity Balance at February 28, 2017 $ 24 $ 2,294,462 $ 1,352,991 $ (2,311,805 ) $ (88,352 ) $ 1,247,320 Net income — — 73,190 — — 73,190 Other comprehensive income, net of tax — — — — 22,612 22,612 Exercise of common stock options — 2,968 — — — 2,968 Common stock repurchase — — — (61,987 ) — (61,987 ) Share-based compensation expense — 43,718 — — — 43,718 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (41,010 ) — — — (41,010 ) Re-issuance of treasury stock under employee stock purchase plan — — — 23,748 — 23,748 Other adjustments — (5,015 ) — — — (5,015 ) Balance at May 31, 2017 $ 24 $ 2,295,123 $ 1,426,181 $ (2,350,044 ) $ (65,740 ) $ 1,305,544 The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2016 (in thousands): Common Additional Retained Treasury Accumulated Loss Total Equity Balance at February 29, 2016 $ 23 $ 2,162,264 $ 1,099,738 $ (1,853,144 ) $ (74,449 ) $ 1,334,432 Net income — — 61,184 — — 61,184 Other comprehensive income, net of tax — — — — 6,702 6,702 Exercise of common stock options 1 1,379 — — — 1,380 Common stock repurchase — — — (66,478 ) — (66,478 ) Share-based compensation expense — 41,275 — — — 41,275 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (31,079 ) — — — (31,079 ) Cumulative-effect adjustment from adoption of ASU 2016-09 — 2,369 (450 ) — — 1,919 Balance at May 31, 2016 $ 24 $ 2,176,208 $ 1,160,472 $ (1,919,622 ) $ (67,747 ) $ 1,349,335 Share Repurchase Programs On June 22, 2016, the Company announced that its Board of Directors authorized the repurchase of up to $1.0 billion of Red Hat’s common stock from time to time on the open market or in privately negotiated transactions. The program commenced on July 1, 2016, and will expire on the earlier of (i) June 30, 2018 or (ii) a determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. The program replaced the previous $500.0 million repurchase program authorized on March 25, 2015, which was discontinued by the Board effective June 30, 2016. During the three months ended May 31, 2017, the Company repurchased 714,906 shares of its common stock for $62.0 million under the repurchase program. From its commencement on July 1, 2016 through May 31, 2017, the Company has repurchased 5,615,555 shares of its common stock under the program. As of May 31, 2017, the amount available under the program for the repurchase of the Company’s common stock was $573.8 million. Accumulated other comprehensive loss The following is a summary of accumulated other comprehensive loss as of May 31, 2017 and February 28, 2017 (in thousands): As of As of Accumulated loss from foreign currency translation adjustment $ (65,114 ) $ (87,784 ) Accumulated unrealized loss, net of tax, on available-for-sale securities (626 ) (568 ) Accumulated other comprehensive loss $ (65,740 ) $ (88,352 ) |
Identifiable Intangible Assets
Identifiable Intangible Assets | 3 Months Ended |
May 31, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Identifiable Intangible Assets | NOTE 4—Identifiable Intangible Assets Identifiable intangible assets consist primarily of trademarks, copyrights and patents, purchased technologies, customer and reseller relationships and covenants not to compete, all of which are amortized over the estimated useful life, generally on a straight-line basis, with the exception of customer and reseller relationships, which are generally amortized over the greater of straight-line or the related asset’s pattern of economic benefit. Useful lives range from two to 10 years. As of May 31, 2017 and February 28, 2017, trademarks with an indefinite estimated useful life totaled $11.3 million and $10.9 million, respectively. Amortization expense associated with identifiable intangible assets recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2017 and May 31, 2016 is summarized as follows (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 4,180 $ 3,967 Sales and marketing 1,459 1,916 Research and development 34 34 General and administrative 1,826 1,753 Total amortization expense $ 7,499 $ 7,670 |
Income Taxes
Income Taxes | 3 Months Ended |
May 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 5—Income Taxes The effective tax rates for the three months ended May 31, 2017 and May 31, 2016 of 13.8% and 15.4%, respectively, differed from the U.S. federal statutory rate of 35% primarily due to excess tax benefits from share-based compensation, foreign income taxed at lower rates and research tax credits. Tax expense for the three months ended May 31, 2017 and May 31, 2016 included net discrete tax benefits of $11.6 million and $8.4 million, respectively, primarily related to net excess tax benefits from share-based compensation. Excluding net discrete tax benefits, the Company’s effective tax rate for the three months ended May 31, 2017 increased by 0.5% as compared to the three months end May 31, 2016 primarily due to a higher percentage of income recognized in higher tax rate jurisdictions. The Company files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. The Company is currently subject to examination by various taxing jurisdictions. The Company regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that its provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on the Company’s consolidated financial statements. The Company believes that some of these audits and negotiations may conclude during the next 12 months. As of May 31, 2017, it is reasonably possible that total gross unrecognized tax benefits may be reduced by up to $1.1 million within the next 12 months as a result of statutes of limitations expirations in various tax jurisdictions, all of which would affect the Company’s effective tax rate. |
Assets and Liabilities Measured
Assets and Liabilities Measured at Fair Value on a Recurring Basis | 3 Months Ended |
May 31, 2017 | |
Fair Value Disclosures [Abstract] | |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | NOTE 6—Assets and Liabilities Measured at Fair Value on a Recurring Basis Fair value is defined as the exchange price that would be received for the purchase of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. The Company’s investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. Liquid investments with effective maturities of three months or less at the date of purchase are classified as cash equivalents. Investments with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than twelve months from the balance sheet date are classified as long-term investments. The Company’s Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Company’s Level 2 financial instruments, including derivative instruments, are valued using quoted prices for identical instruments in less active markets or using other observable market inputs for comparable instruments. Unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Realized gains and losses are recorded using the specific identification method and upon realization, such amounts are reclassified from accumulated other comprehensive income to Other income (expense), net. Realized gains and losses and other than temporary impairments, if any, are reflected in the Company’s Consolidated Statements of Operations as Other income (expense), net. The Company does not recognize changes in the fair value of its investments in income unless a decline in value is considered other than temporary. The vast majority of the Company’s investments are priced by pricing vendors. These pricing vendors use the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, the Company assesses other factors to determine the security’s market value, including broker quotes or model valuations. Independent price verifications of all holdings are performed by pricing vendors, which are then reviewed by the Company. In the event a price fails a pre-established tolerance check, it is researched so that the Company can assess the cause of the variance to determine what the Company believes is the appropriate fair market value. The Company minimizes its credit risk associated with investments by investing primarily in investment-grade, liquid securities. The Company’s policy is designed to limit exposures to any one issuer depending on credit quality. Periodic evaluations of the relative credit standing of those issuers are considered in the Company’s investment strategy. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities as of May 31, 2017 (in thousands): As of Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money markets (1) $ 326,350 $ 326,350 $ — $ — Interest-bearing deposits (1) 27,942 — 27,942 — Available-for-sale securities (1): Commercial paper 20,926 — 20,926 — U.S. agency securities 332,764 — 332,764 — Corporate securities 697,492 — 697,492 — Foreign currency derivatives (2) 278 — 278 — Liabilities: Foreign currency derivatives (3) (137 ) — (137 ) — Total $ 1,405,615 $ 326,350 $ 1,079,265 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet as of May 31, 2017, in addition to $904.1 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet as of May 31, 2017. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet as of May 31, 2017. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities as of February 28, 2017 (in thousands): As of Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money markets (1) $ 258,188 $ 258,188 $ — $ — Available-for-sale securities (1): U.S. agency securities 327,430 — 327,430 — Corporate securities 714,993 — 714,993 — Foreign currency derivatives (2) 135 — 135 — Liabilities: Foreign currency derivatives (3) (160 ) — (160 ) — Total $ 1,300,586 $ 258,188 $ 1,042,398 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet as of February 28, 2017, in addition to $832.6 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet as of February 28, 2017. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet as of February 28, 2017. The following table represents the Company’s investments measured at fair value as of May 31, 2017 (in thousands): Amortized Gross Unrealized Aggregate Balance Sheet Classification Cash Investments Investments Cost Gains Losses(1) Fair Value Money markets $ 326,350 $ — $ — $ 326,350 $ 326,350 $ — $ — Interest-bearing deposits 27,942 — — 27,942 — 27,942 — Commercial paper 20,926 — — 20,926 — 20,926 — U.S. agency securities 334,531 14 (1,781 ) 332,764 — 27,533 305,231 Corporate securities 696,981 1,008 (497 ) 697,492 — 331,625 365,867 Total $ 1,406,730 $ 1,022 $ (2,278 ) $ 1,405,474 $ 326,350 $ 408,026 $ 671,098 (1) As of May 31, 2017, there were $0.7 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $628.5 million. The following table summarizes the stated maturities of the Company’s investments in debt securities (in thousands): Total Less than 1-5 Years More than Maturity of current and long-term investments in debt securities $ 1,079,124 $ 408,026 $ 671,098 $ — The following table represents the Company’s investments measured at fair value as of February 28, 2017 (in thousands): Amortized Aggregate Balance Sheet Classification Gross Unrealized Cash Investments Investments Cost Gains Losses(1) Fair Value Money markets $ 258,188 $ — $ — $ 258,188 $ 258,188 $ — $ — U.S. agency securities 329,617 37 (2,224 ) 327,430 — 27,593 299,837 Corporate securities 714,226 1,416 (649 ) 714,993 — 342,390 372,603 Total $ 1,302,031 $ 1,453 $ (2,873 ) $ 1,300,611 $ 258,188 $ 369,983 $ 672,440 (1) As of February 28, 2017, there were $0.6 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $605.9 million. |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
May 31, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instruments | NOTE 7—Derivative Instruments The Company transacts business in various foreign countries and is, therefore, subject to risk of foreign currency exchange rate fluctuations. The Company from time to time enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations denominated in a currency other than the functional currency of the respective operating entity. All derivative instruments are recorded on the Consolidated Balance Sheets at their respective fair market values. The Company has elected not to prepare and maintain the documentation required to qualify for hedge accounting treatment and, therefore, changes in fair value are recorded in the Consolidated Statements of Operations. See NOTE 6—Assets and Liabilities Measured at Fair Value on a Recurring Basis for information regarding the fair value hierarchy of derivative instruments. The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2017 and for the three months then ended (in thousands): Three Months Ended May 31, 2017 As of May 31, 2017 Classification of Amount of Unrealized Balance Sheet Fair Notional Assets—foreign currency forward contracts not designated as hedges Other current assets $ 278 $ 18,901 Other income (expense), net $ 605 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (137 ) 27,053 Other income (expense), net (320 ) Total $ 141 $ 45,954 $ 285 The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2016 and for the three months then ended (in thousands): Three Months Ended May 31, 2016 As of May 31, 2016 Classification of Amount of Unrealized Balance Sheet Fair Notional Assets—foreign currency forward contracts not designated as hedges Other current assets $ 46 $ 6,563 Other income (expense), net $ 1,199 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (437 ) 27,842 Other income (expense), net (678 ) Total $ (391 ) $ 34,405 $ 521 |
Share-based Awards
Share-based Awards | 3 Months Ended |
May 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Share-based Awards | NOTE 8—Share-based Awards The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the employee requisite service period, typically on a straight-line basis. The Company estimates the fair value of stock options using the Black-Scholes-Merton valuation model. The fair value of nonvested share awards, nonvested share units and performance share units are measured at their underlying closing share price on the day of grant. The following summarizes share-based compensation expense recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2017 and May 31, 2016 (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 3,948 $ 4,305 Sales and marketing 20,612 18,440 Research and development 13,447 12,002 General and administrative 5,711 6,528 Total share-based compensation expense $ 43,718 $ 41,275 Share-based compensation expense qualifying for capitalization was insignificant for each of the three months ended May 31, 2017 and May 31, 2016. Accordingly, no share-based compensation expense was capitalized during the three months ended May 31, 2017 and May 31, 2016. During the three months ended May 31, 2017 and May 31, 2016, the Company granted the following share-based awards: Three Months Ended May 31, 2017 May 31, 2016 Shares and Shares Underlying Weighted Shares and Weighted Service-based shares and share units 838,395 $ 86.17 934,890 $ 75.45 Performance share units—target 261,760 (1) $ 87.99 360,676 $ 76.70 Performance share awards 104,362 (2) $ 87.99 140,182 $ 76.70 Total awards 1,204,517 $ 86.72 1,435,748 $ 75.89 (1) Certain executives and senior management were awarded a target number of performance share units (“PSUs”). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company’s financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2017. The remaining target number of PSUs can be earned by the grantees depending upon the Company’s total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2017. (2) Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for the fiscal year ending February 28, 2018 (the “RSA Performance Goal”). If the Company fails to achieve the RSA Performance Goal for the fiscal year ending February 28, 2018, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for the fiscal year ending February 28, 2018, then 25% of the restricted stock vests on or about July 16, 2018, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee’s business relationship with the Company has not ceased. |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
May 31, 2017 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | NOTE 9—Earnings Per Share The Company computes basic net income per common share by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common share equivalents consist of shares issuable upon the exercise of stock options or vesting of share-based awards. The following table reconciles the numerators and denominators of the earnings per share (“EPS”) calculation for the three months ended May 31, 2017 and May 31, 2016 (in thousands, except per share amounts): Three Months Ended May 31, May 31, Net income, basic and diluted $ 73,190 $ 61,184 Weighted average common shares outstanding 177,243 181,168 Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares 2,974 3,019 Dilutive effect of convertible notes 1,593 — Diluted shares 181,810 184,187 Diluted net income per share $ 0.40 $ 0.33 With respect to the Company’s convertible notes, the Company has the option to pay cash or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock for the aggregate amount due upon conversion of the convertible notes. The Company’s intent is to settle the principal amount of the convertible notes in cash upon conversion. As a result, upon conversion of the convertible notes, only the amounts payable in excess of the principal amounts of the convertible notes are considered in diluted EPS under the treasury stock method. See NOTE 14—Convertible Notes for detailed information on the convertible notes. Warrants to purchase 10,965,630 shares of the Company’s common stock at $101.65 per share were outstanding during the three months ended May 31, 2017 and May 31, 2016 but were not included in the computation of diluted EPS because the warrants’ exercise price was greater than the average market price of the Company’s common stock during the related period. The following share awards were not included in the computation of diluted EPS because the aggregate value of proceeds considered received upon either exercise or vesting was greater than the average market price of the Company’s common stock during the related periods and the effect of including such share awards in the computation would be anti-dilutive (in thousands): Three Months Ended May 31, May 31, Number of shares considered anti-dilutive for calculating diluted EPS 14 1,081 |
Segment Reporting
Segment Reporting | 3 Months Ended |
May 31, 2017 | |
Segment Reporting [Abstract] | |
Segment Reporting | NOTE 10—Segment Reporting The Company is organized primarily on the basis of three geographic business units: the Americas (U.S., Latin America and Canada), Europe, Middle East and Africa (“EMEA”) and Asia Pacific. The following summarizes revenue from unaffiliated customers and income (loss) from operations for the three months ended May 31, 2017 and May 31, 2016 and total cash, cash equivalents and available-for-sale investment securities and total assets as of May 31, 2017 and May 31, 2016, by geographic segment (in thousands): Americas EMEA Asia Pacific Corporate (1) Consolidated Three Months Ended May 31, 2017 Revenue from unaffiliated customers $ 438,380 $ 143,671 $ 94,745 $ — $ 676,796 Income (loss) from operations $ 73,939 $ 29,439 $ 27,948 $ (43,718 ) $ 87,608 Total cash, cash equivalents and available-for-sale investment securities $ 1,186,481 $ 779,346 $ 343,754 $ — $ 2,309,581 Total assets $ 2,863,266 $ 1,129,907 $ 519,263 $ — $ 4,512,436 Three Months Ended May 31, 2016 Revenue from unaffiliated customers $ 365,723 $ 124,299 $ 77,877 $ — $ 567,899 Income (loss) from operations $ 69,756 $ 25,688 $ 21,194 $ (41,275 ) $ 75,363 Total cash, cash equivalents and available-for-sale investment securities $ 1,240,377 $ 613,619 $ 265,880 $ — $ 2,119,876 Total assets $ 2,815,567 $ 892,729 $ 403,985 $ — $ 4,112,281 (1) Amounts represent share-based compensation expense that was not allocated to geographic segments. Supplemental information about geographic areas The following table lists, for each of the three months ended May 31, 2017 and May 31, 2016, revenue from unaffiliated customers in the United States, the Company’s country of domicile, and revenue from unaffiliated customers from foreign countries (in thousands): Three Months Ended May 31, May 31, United States, the Company’s country of domicile $ 394,542 $ 328,529 Foreign 282,254 239,370 Total revenue from unaffiliated customers $ 676,796 $ 567,899 Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company’s country of domicile, and similar tangible long-lived assets, net of accumulated depreciation, held outside the United States are summarized in the following table as of May 31, 2017 and February 28, 2017 (in thousands): May 31, February 28, United States, the Company’s country of domicile $ 135,119 $ 133,492 Foreign 60,162 56,137 Total tangible long-lived assets $ 195,281 $ 189,629 Supplemental information about major customers For the three months ended May 31, 2017 and May 31, 2016, the U.S. government and its agencies represented in the aggregate approximately 11% and 10% of the Company’s total revenue, respectively. At May 31, 2017 and February 28, 2017, the Company had no customers whose accounts receivable balance individually represented 10% or more of total accounts receivable. Supplemental information about products and services The following table, for each of the three months ended May 31, 2017 and May 31, 2016, provides further detail, by type, of the Company’s subscription and services revenues. Infrastructure-related offerings subscription revenue includes subscription revenue generated from Red Hat Enterprise Linux and related technologies such as Red Hat Satellite and Red Hat Enterprise Virtualization. Subscription revenue generated from the Company’s Application Development-related and other emerging technology offerings includes Red Hat JBoss Middleware, Red Hat Storage, Red Hat Mobile Application Platform and Red Hat cloud offerings such as Red Hat OpenStack Platform, Red Hat OpenShift and Red Hat CloudForms (in thousands): Three Months Ended May 31, May 31, Subscription revenue: Infrastructure-related offerings $ 457,961 $ 403,182 Application Development-related and other emerging technology offerings 138,547 98,483 Total subscription revenue 596,508 501,665 Training and services revenue: Consulting services 61,488 50,310 Training 18,800 15,924 Total training and services revenue 80,288 66,234 Total subscription and training and services revenue $ 676,796 $ 567,899 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
May 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 11—Commitments and Contingencies Operating leases As of May 31, 2017, the Company had leases of office space and certain equipment under various non-cancelable operating leases. Rent expense under operating leases for the three months ended May 31, 2017 and May 31, 2016 was $12.5 million and $10.0 million, respectively. Product indemnification The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party from losses arising in connection with the Company’s services or products, or from losses arising in connection with certain events defined within a particular contract, which may include litigation or claims relating to intellectual property infringement, certain losses arising from damage to property or injury to persons or other matters. In each of these circumstances, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these agreements may in certain cases be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third-parties for certain payments made by the Company. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the facts and circumstances involved in each particular agreement. The Company does not record a liability for claims related to indemnification unless the Company concludes that the likelihood of a material claim is probable and estimable. Historically, payments pursuant to these indemnifications have been immaterial. |
Legal Proceedings
Legal Proceedings | 3 Months Ended |
May 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Proceedings | NOTE 12—Legal Proceedings The Company experiences routine litigation in the normal course of its business, including patent litigation. The Company presently believes that the outcome of this routine litigation will not have a material adverse effect on its financial position, results of operations or cash flows. |
Business Combinations
Business Combinations | 3 Months Ended |
May 31, 2017 | |
Business Combinations [Abstract] | |
Business Combinations | NOTE 13—Business Combinations Acquisition of 3scale, Inc. On June 24, 2016, the Company completed its acquisition of all of the shares of 3scale, Inc. (“3scale”), a provider of application programming interface (“API”) management technology. By adding 3scale to its existing portfolio, including Red Hat JBoss Middleware, Red Hat OpenShift and Red Hat Mobile Application Platform, the Company strengthens its enablement of the API economy with simplified cloud integration and microservices-based architectures. The consideration paid was $29.1 million in cash. Management has completed its assessment of the acquisition-date fair value of the assets acquired and liabilities assumed. The total consideration transferred of $29.1 million was allocated to the Company’s assets and liabilities as follows: $16.9 million to goodwill, $13.1 million to identifiable intangible assets and $0.9 million to working capital as a net current liability. Pro forma consolidated financial information Pro forma consolidated financial information for the three months ended May 31, 2016 has not been provided because the acquisition of 3scale would not have had a significant impact on consolidated operating results if the acquisition had closed on March 1, 2016. Goodwill The following is a summary of changes in goodwill for the three months ended May 31, 2017 (in thousands): Balance at February 28, 2017 $ 1,040,709 Impact of foreign currency fluctuations 6,329 Balance at May 31, 2017 $ 1,047,038 The excess of purchase price paid for 3scale and other acquisitions over the fair value of the net assets acquired was recognized as goodwill. Goodwill comprises the majority of the purchase price paid for each of the acquired businesses because these businesses were focused on emerging technologies such as development and operations automation, mobile technologies, cloud-enabling technologies and software-defined storage technologies, which consequently—at the time of acquisition—generated relatively little revenue. However, these acquired businesses, with their assembled, highly-specialized workforces and community of contributors, are expected to both expand the Company’s existing technology portfolio and advance the Company’s market position overall in open source solutions. |
Convertible Notes
Convertible Notes | 3 Months Ended |
May 31, 2017 | |
Debt Disclosure [Abstract] | |
Convertible Notes | NOTE 14—Convertible Notes Convertible note offering On October 7, 2014, the Company completed its offering of $805.0 million aggregate principal amount of its 0.25% Convertible Senior Notes due 2019 (the “convertible notes”). The convertible notes were sold in a private placement under a purchase agreement, dated as of October 1, 2014, entered into by and among the Company and the initial purchasers, for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. For additional information, see NOTE 21—Convertible Notes to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. Indenture On October 7, 2014, the Company entered into an indenture (the “Indenture”) with respect to the convertible notes with U.S. Bank National Association, as trustee (the “Trustee”). Under the Indenture, the convertible notes will be senior unsecured obligations of the Company and bear interest at a rate of 0.25% per year, payable semiannually in arrears on April 1 and October 1 of each year, and began on April 1, 2015. The convertible notes will mature on October 1, 2019, unless previously purchased or converted. The convertible notes are convertible into shares of the Company’s common stock at an initial conversion rate of 13.6219 shares per $1,000 principal amount of convertible notes (which is equivalent to an initial conversion price of approximately $73.41 per share), subject to adjustment upon the occurrence of certain events. Upon conversion of the convertible notes, holders will receive cash or shares of the Company’s common stock or a combination thereof, at the Company’s election. Prior to April 1, 2019, the convertible notes will be convertible only upon the occurrence of certain circumstances, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the convertible notes. The conversion rate is subject to customary anti-dilution adjustments. If certain corporate events described in the Indenture occur prior to the maturity date, the conversion rate will be increased for a holder who elects to convert its convertible notes in connection with such corporate event in certain circumstances. The convertible notes are not redeemable prior to maturity, and no sinking fund is provided for the notes. If the Company undergoes a “fundamental change,” as defined in the Indenture, subject to certain conditions, holders may require the Company to purchase for cash all or any portion of their convertible notes. The fundamental change purchase price will be 100% of the principal amount of the convertible notes to be purchased plus any accrued and unpaid special interest up to but excluding the fundamental change purchase date. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding convertible notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the convertible notes to be due and payable. In accounting for the issuance of the convertible notes, the Company separated the convertible notes into liability and equity components. The Company allocated the total transaction costs incurred to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component are being amortized to interest expense over the term of the convertible notes. The excess of the face value of the convertible notes as a whole over the carrying amount of the liability component (the “debt discount”) is being amortized to interest expense over the term of the convertible notes. As of May 31, 2017 and February 28, 2017, the convertible notes consisted of the following (in thousands): May 31, February 28, Liability component: Principal $ 805,000 $ 805,000 Less: debt issuance costs (6,769 ) (7,442 ) Less: debt discount (47,058 ) (51,925 ) Net carrying amount $ 751,173 $ 745,633 Equity component (1) $ 96,890 $ 96,890 (1) Recorded in the Consolidated Balance Sheets in Additional paid-in capital. The following table includes total interest expense recognized related to the convertible notes for the three months ended May 31, 2017 and May 31, 2016 (in thousands): Three Months Ended May 31, 2017 May 31, 2016 Coupon rate 0.25% per year, payable semiannually $ 503 $ 503 Amortization of convertible note issuance costs—liability component 673 633 Accretion of debt discount 4,867 4,732 Total interest expense related to convertible notes $ 6,043 $ 5,868 The fair value of the convertible notes, which was determined based on inputs that are observable in the market (Level 2), and the carrying value of the convertible notes (the carrying value excludes the equity component of the convertible notes classified in equity) are as follows (in thousands): As of May 31, 2017 Fair Value Carrying Value Convertible notes $ 767,756 $ 751,173 Convertible note hedge transactions and warrant transactions On October 1, 2014, the Company entered into convertible note hedge transactions and warrant transactions with certain of the initial purchasers of the convertible notes or their respective affiliates. The convertible note hedge transactions are expected to offset, to the extent the Company’s common stock per share price does not exceed $101.65, the potential dilution with respect to shares of the Company’s common stock upon any conversion of the convertible notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be. To partially offset the $148.0 million cost of the convertible note hedge transactions, the Company issued warrants and received proceeds of $79.8 million. The number of shares of the Company’s common stock underlying the warrants total 10,965,630, the same number of shares underlying the convertible notes and the convertible note hedge transactions. The combination of the convertible note hedge transactions and the warrant transactions effectively increases the initial conversion price of the convertible notes from $73.41 per share to $101.65 per share. As a result, the warrant transactions will have a dilutive effect with respect to the Company’s common stock to the extent that the market price per share of the Company’s common stock, as measured under the terms of the warrant transactions, exceeds the $101.65 strike price of the warrants. However, subject to certain conditions, the Company may elect to settle all of the warrants in cash. |
Summary of Significant Accoun21
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
May 31, 2017 | |
Accounting Policies [Abstract] | |
Basis of presentation | Basis of presentation The unaudited interim consolidated financial statements as of and for the three months ended May 31, 2017 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the consolidated balance sheets, consolidated operating results, consolidated other comprehensive income and consolidated cash flows for the periods presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Operating results for the three months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2018. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. These unaudited financial statements should be read in conjunction with the Company’s Consolidated Financial Statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. There have been no changes to the Company’s significant accounting policies from those described in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017. These unaudited financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K. Certain amounts for the three months ended May 31, 2016 have been reclassified to conform to the current year presentation. |
Consolidation policy | Consolidation policy The accompanying Consolidated Financial Statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. There are no foreign currency exchange restrictions that are significant to the Company’s foreign subsidiaries. |
Use of estimates | Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from such estimates. |
Accounting pronouncements being evaluated | Accounting pronouncements being evaluated In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers The Company has substantially completed its preliminary assessment of the potential impact that the implementation of this updated standard will have on its consolidated financial statements. With respect to the Company’s software subscription offerings, the Company provides value to its customers through continuous aggregation, integration, testing, certification, maintenance, enhancement and support of the open source technologies that it distributes. The Company currently recognizes subscription revenue ratably over the subscription period. Under the updated standard, these subscription attributes represent a series of performance obligations that are delivered over time, primarily on a stand-ready basis (for example, attributes such as updates, upgrades, and support are not forced upon subscribers but rather made available to subscribers). As a result, the Company believes that its subscription revenue meets the criteria for revenue recognition over time and will continue to be recognized ratably under the updated standard. The Company also offers professional consulting and training services that are designed to help customers derive additional value from Red Hat technologies. Under the updated guidance, revenue from professional consulting and training services that were previously sold on a standalone basis will continue to be recognized over time as the Company satisfies its performance obligations by delivering and transferring such services to the customer. With respect to customer contracts with multiple elements (such as software subscriptions and professional consulting and training services), under the current standard the Company allocates total contract revenue to each element’s relative fair value when the Company can demonstrate sufficient vendor-specific objective evidence (“VSOE”) of the fair value of at least those elements that are undelivered. For multiple-element contracts in which one or more of the undelivered elements lacks VSOE, the Company defers recognition of any revenue until the elements lacking VSOE have been delivered. However, under the updated standard, the Company will be required to allocate total contract revenue to each element (referred to as a distinct performance obligation under the updated standard) based on either an established or estimated standalone selling price. The Company would then recognize the allocated revenue as each element (performance obligation) is delivered. Because the Company has historically established VSOE for most of its offerings and as a result has not been required to defer a significant amount of revenue due to insufficient VSOE, the Company does not anticipate the updated standard’s requirement to establish or estimate a standalone selling price, rather than defer revenues in the absence of VSOE, to have a significant impact on the Company’s financial statements. The Company continues to assess the impact of the updated guidance, including for example, any potential changes to and investments in the Company’s policies, processes, systems and internal controls over financial reporting that may be required to comply with new guidance related to variable consideration, contract modifications, allocation of discounts and expanded disclosures. The Company has not yet finalized its decision with respect to transition method. |
Identifiable Intangible Assets | Identifiable intangible assets consist primarily of trademarks, copyrights and patents, purchased technologies, customer and reseller relationships and covenants not to compete, all of which are amortized over the estimated useful life, generally on a straight-line basis, with the exception of customer and reseller relationships, which are generally amortized over the greater of straight-line or the related asset’s pattern of economic benefit. Useful lives range from two to 10 years. As of May 31, 2017 and February 28, 2017, trademarks with an indefinite estimated useful life totaled $11.3 million and $10.9 million, respectively. |
Assets and Liabilities Measured at Fair Value | Fair value is defined as the exchange price that would be received for the purchase of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. The Company’s investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. Liquid investments with effective maturities of three months or less at the date of purchase are classified as cash equivalents. Investments with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than twelve months from the balance sheet date are classified as long-term investments. The Company’s Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Company’s Level 2 financial instruments, including derivative instruments, are valued using quoted prices for identical instruments in less active markets or using other observable market inputs for comparable instruments. Unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Realized gains and losses are recorded using the specific identification method and upon realization, such amounts are reclassified from accumulated other comprehensive income to Other income (expense), net. Realized gains and losses and other than temporary impairments, if any, are reflected in the Company’s Consolidated Statements of Operations as Other income (expense), net. The Company does not recognize changes in the fair value of its investments in income unless a decline in value is considered other than temporary. The vast majority of the Company’s investments are priced by pricing vendors. These pricing vendors use the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, the Company assesses other factors to determine the security’s market value, including broker quotes or model valuations. Independent price verifications of all holdings are performed by pricing vendors, which are then reviewed by the Company. In the event a price fails a pre-established tolerance check, it is researched so that the Company can assess the cause of the variance to determine what the Company believes is the appropriate fair market value. The Company minimizes its credit risk associated with investments by investing primarily in investment-grade, liquid securities. The Company’s policy is designed to limit exposures to any one issuer depending on credit quality. Periodic evaluations of the relative credit standing of those issuers are considered in the Company’s investment strategy. |
Derivative Instruments | The Company transacts business in various foreign countries and is, therefore, subject to risk of foreign currency exchange rate fluctuations. The Company from time to time enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations denominated in a currency other than the functional currency of the respective operating entity. All derivative instruments are recorded on the Consolidated Balance Sheets at their respective fair market values. The Company has elected not to prepare and maintain the documentation required to qualify for hedge accounting treatment and, therefore, changes in fair value are recorded in the Consolidated Statements of Operations. |
Share Based Awards | The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award and recognizes the cost over the employee requisite service period, typically on a straight-line basis. The Company estimates the fair value of stock options using the Black-Scholes-Merton valuation model. The fair value of nonvested share awards, nonvested share units and performance share units are measured at their underlying closing share price on the day of grant. |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended |
May 31, 2017 | |
Equity [Abstract] | |
Summary of Changes in Stockholders' Equity | The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2017 (in thousands): Common Additional Retained Treasury Accumulated Total Equity Balance at February 28, 2017 $ 24 $ 2,294,462 $ 1,352,991 $ (2,311,805 ) $ (88,352 ) $ 1,247,320 Net income — — 73,190 — — 73,190 Other comprehensive income, net of tax — — — — 22,612 22,612 Exercise of common stock options — 2,968 — — — 2,968 Common stock repurchase — — — (61,987 ) — (61,987 ) Share-based compensation expense — 43,718 — — — 43,718 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (41,010 ) — — — (41,010 ) Re-issuance of treasury stock under employee stock purchase plan — — — 23,748 — 23,748 Other adjustments — (5,015 ) — — — (5,015 ) Balance at May 31, 2017 $ 24 $ 2,295,123 $ 1,426,181 $ (2,350,044 ) $ (65,740 ) $ 1,305,544 The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2016 (in thousands): Common Additional Retained Treasury Accumulated Loss Total Equity Balance at February 29, 2016 $ 23 $ 2,162,264 $ 1,099,738 $ (1,853,144 ) $ (74,449 ) $ 1,334,432 Net income — — 61,184 — — 61,184 Other comprehensive income, net of tax — — — — 6,702 6,702 Exercise of common stock options 1 1,379 — — — 1,380 Common stock repurchase — — — (66,478 ) — (66,478 ) Share-based compensation expense — 41,275 — — — 41,275 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (31,079 ) — — — (31,079 ) Cumulative-effect adjustment from adoption of ASU 2016-09 — 2,369 (450 ) — — 1,919 Balance at May 31, 2016 $ 24 $ 2,176,208 $ 1,160,472 $ (1,919,622 ) $ (67,747 ) $ 1,349,335 |
Summary of Accumulated Other Comprehensive Loss | The following is a summary of accumulated other comprehensive loss as of May 31, 2017 and February 28, 2017 (in thousands): As of As of Accumulated loss from foreign currency translation adjustment $ (65,114 ) $ (87,784 ) Accumulated unrealized loss, net of tax, on available-for-sale securities (626 ) (568 ) Accumulated other comprehensive loss $ (65,740 ) $ (88,352 ) |
Identifiable Intangible Assets
Identifiable Intangible Assets (Tables) | 3 Months Ended |
May 31, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Amortization Expense Associated with Identifiable Intangible Assets | Amortization expense associated with identifiable intangible assets recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2017 and May 31, 2016 is summarized as follows (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 4,180 $ 3,967 Sales and marketing 1,459 1,916 Research and development 34 34 General and administrative 1,826 1,753 Total amortization expense $ 7,499 $ 7,670 |
Assets and Liabilities Measur24
Assets and Liabilities Measured at Fair Value on a Recurring Basis (Tables) | 3 Months Ended |
May 31, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities as of May 31, 2017 (in thousands): As of Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money markets (1) $ 326,350 $ 326,350 $ — $ — Interest-bearing deposits (1) 27,942 — 27,942 — Available-for-sale securities (1): Commercial paper 20,926 — 20,926 — U.S. agency securities 332,764 — 332,764 — Corporate securities 697,492 — 697,492 — Foreign currency derivatives (2) 278 — 278 — Liabilities: Foreign currency derivatives (3) (137 ) — (137 ) — Total $ 1,405,615 $ 326,350 $ 1,079,265 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet as of May 31, 2017, in addition to $904.1 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet as of May 31, 2017. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet as of May 31, 2017. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities as of February 28, 2017 (in thousands): As of Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Money markets (1) $ 258,188 $ 258,188 $ — $ — Available-for-sale securities (1): U.S. agency securities 327,430 — 327,430 — Corporate securities 714,993 — 714,993 — Foreign currency derivatives (2) 135 — 135 — Liabilities: Foreign currency derivatives (3) (160 ) — (160 ) — Total $ 1,300,586 $ 258,188 $ 1,042,398 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet as of February 28, 2017, in addition to $832.6 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet as of February 28, 2017. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet as of February 28, 2017. |
Investments Measured at Fair Value | The following table represents the Company’s investments measured at fair value as of May 31, 2017 (in thousands): Amortized Gross Unrealized Aggregate Balance Sheet Classification Cash Investments Investments Cost Gains Losses(1) Fair Value Money markets $ 326,350 $ — $ — $ 326,350 $ 326,350 $ — $ — Interest-bearing deposits 27,942 — — 27,942 — 27,942 — Commercial paper 20,926 — — 20,926 — 20,926 — U.S. agency securities 334,531 14 (1,781 ) 332,764 — 27,533 305,231 Corporate securities 696,981 1,008 (497 ) 697,492 — 331,625 365,867 Total $ 1,406,730 $ 1,022 $ (2,278 ) $ 1,405,474 $ 326,350 $ 408,026 $ 671,098 (1) As of May 31, 2017, there were $0.7 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $628.5 million. The following table represents the Company’s investments measured at fair value as of February 28, 2017 (in thousands): Amortized Aggregate Balance Sheet Classification Gross Unrealized Cash Investments Investments Cost Gains Losses(1) Fair Value Money markets $ 258,188 $ — $ — $ 258,188 $ 258,188 $ — $ — U.S. agency securities 329,617 37 (2,224 ) 327,430 — 27,593 299,837 Corporate securities 714,226 1,416 (649 ) 714,993 — 342,390 372,603 Total $ 1,302,031 $ 1,453 $ (2,873 ) $ 1,300,611 $ 258,188 $ 369,983 $ 672,440 (1) As of February 28, 2017, there were $0.6 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $605.9 million. |
Summary of Stated Maturities of Investment in Debt Securities | The following table summarizes the stated maturities of the Company’s investments in debt securities (in thousands): Total Less than 1-5 Years More than Maturity of current and long-term investments in debt securities $ 1,079,124 $ 408,026 $ 671,098 $ — |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
May 31, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Summary of Effects of Derivative Instruments | The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2017 and for the three months then ended (in thousands): Three Months Ended May 31, 2017 As of May 31, 2017 Classification of Amount of Unrealized Balance Sheet Fair Notional Assets—foreign currency forward contracts not designated as hedges Other current assets $ 278 $ 18,901 Other income (expense), net $ 605 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (137 ) 27,053 Other income (expense), net (320 ) Total $ 141 $ 45,954 $ 285 The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2016 and for the three months then ended (in thousands): Three Months Ended May 31, 2016 As of May 31, 2016 Classification of Amount of Unrealized Balance Sheet Fair Notional Assets—foreign currency forward contracts not designated as hedges Other current assets $ 46 $ 6,563 Other income (expense), net $ 1,199 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (437 ) 27,842 Other income (expense), net (678 ) Total $ (391 ) $ 34,405 $ 521 |
Share-based Awards (Tables)
Share-based Awards (Tables) | 3 Months Ended |
May 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Share-Based Compensation Expense | The following summarizes share-based compensation expense recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2017 and May 31, 2016 (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 3,948 $ 4,305 Sales and marketing 20,612 18,440 Research and development 13,447 12,002 General and administrative 5,711 6,528 Total share-based compensation expense $ 43,718 $ 41,275 |
Summary of Share-Based Awards Granted During Period | During the three months ended May 31, 2017 and May 31, 2016, the Company granted the following share-based awards: Three Months Ended May 31, 2017 May 31, 2016 Shares and Shares Underlying Weighted Shares and Weighted Service-based shares and share units 838,395 $ 86.17 934,890 $ 75.45 Performance share units—target 261,760 (1) $ 87.99 360,676 $ 76.70 Performance share awards 104,362 (2) $ 87.99 140,182 $ 76.70 Total awards 1,204,517 $ 86.72 1,435,748 $ 75.89 (1) Certain executives and senior management were awarded a target number of performance share units (“PSUs”). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company’s financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2017. The remaining target number of PSUs can be earned by the grantees depending upon the Company’s total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2017. (2) Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for the fiscal year ending February 28, 2018 (the “RSA Performance Goal”). If the Company fails to achieve the RSA Performance Goal for the fiscal year ending February 28, 2018, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for the fiscal year ending February 28, 2018, then 25% of the restricted stock vests on or about July 16, 2018, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee’s business relationship with the Company has not ceased. |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
May 31, 2017 | |
Earnings Per Share [Abstract] | |
Reconciliation of Numerators and Denominators of Earnings Per Share Calculation | The following table reconciles the numerators and denominators of the earnings per share (“EPS”) calculation for the three months ended May 31, 2017 and May 31, 2016 (in thousands, except per share amounts): Three Months Ended May 31, May 31, Net income, basic and diluted $ 73,190 $ 61,184 Weighted average common shares outstanding 177,243 181,168 Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares 2,974 3,019 Dilutive effect of convertible notes 1,593 — Diluted shares 181,810 184,187 Diluted net income per share $ 0.40 $ 0.33 |
Shares Considered Anti-Dilutive for Calculating Diluted EPS | The following share awards were not included in the computation of diluted EPS because the aggregate value of proceeds considered received upon either exercise or vesting was greater than the average market price of the Company’s common stock during the related periods and the effect of including such share awards in the computation would be anti-dilutive (in thousands): Three Months Ended May 31, May 31, Number of shares considered anti-dilutive for calculating diluted EPS 14 1,081 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 3 Months Ended |
May 31, 2017 | |
Segment Reporting [Abstract] | |
Summary of Revenue, Income (Loss) from Operations, Total Assets and Total Cash, Cash Equivalents and Available-for-Sale Investment Securities by Geographic Segment | The following summarizes revenue from unaffiliated customers and income (loss) from operations for the three months ended May 31, 2017 and May 31, 2016 and total cash, cash equivalents and available-for-sale investment securities and total assets as of May 31, 2017 and May 31, 2016, by geographic segment (in thousands): Americas EMEA Asia Pacific Corporate (1) Consolidated Three Months Ended May 31, 2017 Revenue from unaffiliated customers $ 438,380 $ 143,671 $ 94,745 $ — $ 676,796 Income (loss) from operations $ 73,939 $ 29,439 $ 27,948 $ (43,718 ) $ 87,608 Total cash, cash equivalents and available-for-sale investment securities $ 1,186,481 $ 779,346 $ 343,754 $ — $ 2,309,581 Total assets $ 2,863,266 $ 1,129,907 $ 519,263 $ — $ 4,512,436 Three Months Ended May 31, 2016 Revenue from unaffiliated customers $ 365,723 $ 124,299 $ 77,877 $ — $ 567,899 Income (loss) from operations $ 69,756 $ 25,688 $ 21,194 $ (41,275 ) $ 75,363 Total cash, cash equivalents and available-for-sale investment securities $ 1,240,377 $ 613,619 $ 265,880 $ — $ 2,119,876 Total assets $ 2,815,567 $ 892,729 $ 403,985 $ — $ 4,112,281 (1) Amounts represent share-based compensation expense that was not allocated to geographic segments. |
Summary of Revenue from Unaffiliated Customers | The following table lists, for each of the three months ended May 31, 2017 and May 31, 2016, revenue from unaffiliated customers in the United States, the Company’s country of domicile, and revenue from unaffiliated customers from foreign countries (in thousands): Three Months Ended May 31, May 31, United States, the Company’s country of domicile $ 394,542 $ 328,529 Foreign 282,254 239,370 Total revenue from unaffiliated customers $ 676,796 $ 567,899 |
Summary of Tangible Long-Lived Assets | Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company’s country of domicile, and similar tangible long-lived assets, net of accumulated depreciation, held outside the United States are summarized in the following table as of May 31, 2017 and February 28, 2017 (in thousands): May 31, February 28, United States, the Company’s country of domicile $ 135,119 $ 133,492 Foreign 60,162 56,137 Total tangible long-lived assets $ 195,281 $ 189,629 |
Summary of Subscription Revenue and Services by Technology Classes | The following table, for each of the three months ended May 31, 2017 and May 31, 2016, provides further detail, by type, of the Company’s subscription and services revenues. Infrastructure-related offerings subscription revenue includes subscription revenue generated from Red Hat Enterprise Linux and related technologies such as Red Hat Satellite and Red Hat Enterprise Virtualization. Subscription revenue generated from the Company’s Application Development-related and other emerging technology offerings includes Red Hat JBoss Middleware, Red Hat Storage, Red Hat Mobile Application Platform and Red Hat cloud offerings such as Red Hat OpenStack Platform, Red Hat OpenShift and Red Hat CloudForms (in thousands): Three Months Ended May 31, May 31, Subscription revenue: Infrastructure-related offerings $ 457,961 $ 403,182 Application Development-related and other emerging technology offerings 138,547 98,483 Total subscription revenue 596,508 501,665 Training and services revenue: Consulting services 61,488 50,310 Training 18,800 15,924 Total training and services revenue 80,288 66,234 Total subscription and training and services revenue $ 676,796 $ 567,899 |
Business Combinations (Tables)
Business Combinations (Tables) | 3 Months Ended |
May 31, 2017 | |
Business Combinations [Abstract] | |
Summary of Changes in Goodwill | The following is a summary of changes in goodwill for the three months ended May 31, 2017 (in thousands): Balance at February 28, 2017 $ 1,040,709 Impact of foreign currency fluctuations 6,329 Balance at May 31, 2017 $ 1,047,038 |
Convertible Notes (Tables)
Convertible Notes (Tables) | 3 Months Ended |
May 31, 2017 | |
Debt Disclosure [Abstract] | |
Components of Convertible Notes | As of May 31, 2017 and February 28, 2017, the convertible notes consisted of the following (in thousands): May 31, February 28, Liability component: Principal $ 805,000 $ 805,000 Less: debt issuance costs (6,769 ) (7,442 ) Less: debt discount (47,058 ) (51,925 ) Net carrying amount $ 751,173 $ 745,633 Equity component (1) $ 96,890 $ 96,890 (1) Recorded in the Consolidated Balance Sheets in Additional paid-in capital. |
Schedule of Total Interest Expense Recognized Related to Convertible Notes | The following table includes total interest expense recognized related to the convertible notes for the three months ended May 31, 2017 and May 31, 2016 (in thousands): Three Months Ended May 31, 2017 May 31, 2016 Coupon rate 0.25% per year, payable semiannually $ 503 $ 503 Amortization of convertible note issuance costs—liability component 673 633 Accretion of debt discount 4,867 4,732 Total interest expense related to convertible notes $ 6,043 $ 5,868 |
Summary of Fair Value of Convertible Notes and Carrying Value of Convertible Notes | The fair value of the convertible notes, which was determined based on inputs that are observable in the market (Level 2), and the carrying value of the convertible notes (the carrying value excludes the equity component of the convertible notes classified in equity) are as follows (in thousands): As of May 31, 2017 Fair Value Carrying Value Convertible notes $ 767,756 $ 751,173 |
Summary of Changes in Stockhold
Summary of Changes in Stockholders' Equity (Detail) - USD ($) $ in Thousands | 3 Months Ended | ||
May 31, 2017 | May 31, 2016 | ||
Beginning Balance | $ 1,247,320 | [1] | $ 1,334,432 |
Net income | 73,190 | 61,184 | |
Other comprehensive income, net of tax | 22,612 | 6,702 | |
Exercise of common stock options | 2,968 | 1,380 | |
Common stock repurchase | (61,987) | (66,478) | |
Share-based compensation expense | 43,718 | 41,275 | |
Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards | (41,010) | (31,079) | |
Re-issuance of treasury stock under employee stock purchase plan | 23,748 | ||
Cumulative-effect adjustment from adoption of ASU 2016-09 | 1,919 | ||
Other adjustments | (5,015) | ||
Ending Balance | 1,305,544 | 1,349,335 | |
Common Stock | |||
Beginning Balance | 24 | 23 | |
Exercise of common stock options | 1 | ||
Ending Balance | 24 | 24 | |
Additional Paid-In Capital | |||
Beginning Balance | 2,294,462 | 2,162,264 | |
Exercise of common stock options | 2,968 | 1,379 | |
Share-based compensation expense | 43,718 | 41,275 | |
Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards | (41,010) | (31,079) | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | 2,369 | ||
Other adjustments | (5,015) | ||
Ending Balance | 2,295,123 | 2,176,208 | |
Retained Earnings | |||
Beginning Balance | 1,352,991 | 1,099,738 | |
Net income | 73,190 | 61,184 | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | (450) | ||
Ending Balance | 1,426,181 | 1,160,472 | |
Treasury Stock | |||
Beginning Balance | (2,311,805) | (1,853,144) | |
Common stock repurchase | (61,987) | (66,478) | |
Re-issuance of treasury stock under employee stock purchase plan | 23,748 | ||
Ending Balance | (2,350,044) | (1,919,622) | |
Accumulated Other Comprehensive Loss | |||
Beginning Balance | (88,352) | (74,449) | |
Other comprehensive income, net of tax | 22,612 | 6,702 | |
Ending Balance | $ (65,740) | $ (67,747) | |
[1] | Derived from audited financial statements. |
Stockholders' Equity - Addition
Stockholders' Equity - Additional Information (Detail) - USD ($) | Jun. 22, 2016 | Jun. 30, 2016 | May 31, 2017 | May 31, 2016 | May 31, 2017 |
Shareholders Equity [Line Items] | |||||
Aggregate cost of common stock repurchased | $ 61,987,000 | $ 66,478,000 | |||
June 2016 Share Repurchase Program | |||||
Shareholders Equity [Line Items] | |||||
Common stock authorized for stock repurchase program | $ 1,000,000,000 | ||||
Stock repurchase program expiration date | Jun. 30, 2018 | ||||
Stock repurchase program expiration description | The program commenced on July 1, 2016, and will expire on the earlier of (i) June 30, 2018 or (ii) a determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. | ||||
Common stock, purchased during the period | 714,906 | 5,615,555 | |||
Aggregate cost of common stock repurchased | $ 62,000,000 | ||||
Stock available for repurchase | $ 573,800,000 | $ 573,800,000 | |||
March 2015 Share Repurchase Program | |||||
Shareholders Equity [Line Items] | |||||
Common stock authorized for stock repurchase program | $ 500,000,000 | ||||
Stock repurchase program termination date | Jun. 30, 2016 |
Summary of Accumulated Other Co
Summary of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | |
Statement of Comprehensive Income [Abstract] | |||
Accumulated loss from foreign currency translation adjustment | $ (65,114) | $ (87,784) | |
Accumulated unrealized loss, net of tax, on available-for-sale securities | (626) | (568) | |
Accumulated other comprehensive loss | $ (65,740) | $ (88,352) | [1] |
[1] | Derived from audited financial statements. |
Identifiable Intangible Asset34
Identifiable Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
May 31, 2017 | Feb. 28, 2017 | |
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Carrying amount for trademarks with an indefinite estimated useful life | $ 11.3 | $ 10.9 |
Minimum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Total identified intangible assets, useful life (in years) | 2 years | |
Maximum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Total identified intangible assets, useful life (in years) | 10 years |
Schedule of Amortization Expens
Schedule of Amortization Expense Associated with Identifiable Intangible Assets (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 7,499 | $ 7,670 |
Cost of Revenue | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 4,180 | 3,967 |
Sales and Marketing | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 1,459 | 1,916 |
Research and Development | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 34 | 34 |
General and Administrative | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 1,826 | $ 1,753 |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Detail) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Income Taxes [Line Items] | ||
Effective tax rate | 13.80% | 15.40% |
Federal statutory rate | 35.00% | |
Net discrete tax benefits | $ 11,600,000 | $ 8,400,000 |
Increase in effective tax rate due to higher tax rate jurisdictions | 0.50% | |
Significant change in unrecognized tax benefits, nature of event | As a result of statutes of limitations expirations in various tax jurisdictions | |
Maximum | ||
Income Taxes [Line Items] | ||
Decrease in unrecognized tax benefits | $ 1,100,000 |
Fair Value of Assets and Liabil
Fair Value of Assets and Liabilities Acquired (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Money markets | $ 326,350 | [1] | $ 258,188 | [2] | |
Interest-bearing deposits | [1] | 27,942 | |||
Available-for-sale securities | 1,405,474 | 1,300,611 | |||
Foreign currency derivatives, assets | 278 | [3] | 135 | [4] | |
Foreign currency derivatives, liabilities | (137) | [5] | (160) | [6] | |
Total | 1,405,615 | 1,300,586 | |||
Commercial Paper | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | [1] | 20,926 | |||
U.S. Agencies Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | 332,764 | [1] | 327,430 | [2] | |
Corporate Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | 697,492 | [1] | 714,993 | [2] | |
Fair Value, Inputs, Level 1 | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Money markets | 326,350 | [1] | 258,188 | [2] | |
Total | 326,350 | 258,188 | |||
Fair Value, Inputs, Level 2 | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Interest-bearing deposits | [1] | 27,942 | |||
Foreign currency derivatives, assets | 278 | [3] | 135 | [4] | |
Foreign currency derivatives, liabilities | (137) | [5] | (160) | [6] | |
Total | 1,079,265 | 1,042,398 | |||
Fair Value, Inputs, Level 2 | Commercial Paper | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | [1] | 20,926 | |||
Fair Value, Inputs, Level 2 | U.S. Agencies Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | 332,764 | [1] | 327,430 | [2] | |
Fair Value, Inputs, Level 2 | Corporate Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Available-for-sale securities | $ 697,492 | [1] | $ 714,993 | [2] | |
[1] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet as of May 31, 2017, in addition to $904.1 million of cash. | ||||
[2] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet as of February 28, 2017, in addition to $832.6 million of cash. | ||||
[3] | Included in Other current assets in the Company's Consolidated Balance Sheet as of May 31, 2017. | ||||
[4] | Included in Other current assets in the Company's Consolidated Balance Sheet as of February 28, 2017. | ||||
[5] | Included in Accounts payable and accrued expenses in the Company's Consolidated Balance Sheet as of May 31, 2017. | ||||
[6] | Included in Accounts payable and accrued expenses in the Company's Consolidated Balance Sheet as of February 28, 2017. |
Fair Value of Assets and Liab38
Fair Value of Assets and Liabilities Acquired (Parenthetical) (Detail) - USD ($) $ in Millions | May 31, 2017 | Feb. 28, 2017 |
Fair Value Disclosures [Abstract] | ||
Cash | $ 904.1 | $ 832.6 |
Investments Measured at Fair Va
Investments Measured at Fair Value (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | $ 1,406,730 | $ 1,302,031 | |||
Gross Unrealized Gains | 1,022 | 1,453 | |||
Gross Unrealized Losses | (2,278) | [1] | (2,873) | [2] | |
Aggregate Fair Value | 1,405,474 | 1,300,611 | |||
Cash Equivalent Marketable Securities | 326,350 | 258,188 | |||
Investments in debt securities, short-term | 408,026 | 369,983 | [3] | ||
Investments in debt securities, long-term | 671,098 | 672,440 | [3] | ||
Money Market Funds | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | 326,350 | 258,188 | |||
Aggregate Fair Value | 326,350 | 258,188 | |||
Cash Equivalent Marketable Securities | 326,350 | 258,188 | |||
Interest-bearing Deposits | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | 27,942 | ||||
Aggregate Fair Value | 27,942 | ||||
Investments in debt securities, short-term | 27,942 | ||||
Commercial Paper | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | 20,926 | ||||
Aggregate Fair Value | [4] | 20,926 | |||
Investments in debt securities, short-term | 20,926 | ||||
U.S. Agencies Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | 334,531 | 329,617 | |||
Gross Unrealized Gains | 14 | 37 | |||
Gross Unrealized Losses | (1,781) | [1] | (2,224) | [2] | |
Aggregate Fair Value | 332,764 | [4] | 327,430 | [5] | |
Investments in debt securities, short-term | 27,533 | 27,593 | |||
Investments in debt securities, long-term | 305,231 | 299,837 | |||
Corporate Securities | |||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||
Amortized Cost | 696,981 | 714,226 | |||
Gross Unrealized Gains | 1,008 | 1,416 | |||
Gross Unrealized Losses | (497) | [1] | (649) | [2] | |
Aggregate Fair Value | 697,492 | [4] | 714,993 | [5] | |
Investments in debt securities, short-term | 331,625 | 342,390 | |||
Investments in debt securities, long-term | $ 365,867 | $ 372,603 | |||
[1] | As of May 31, 2017, there were $0.7 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $628.5 million. | ||||
[2] | As of February 28, 2017, there were $0.6 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $605.9 million. | ||||
[3] | Derived from audited financial statements. | ||||
[4] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet as of May 31, 2017, in addition to $904.1 million of cash. | ||||
[5] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet as of February 28, 2017, in addition to $832.6 million of cash. |
Investments Measured at Fair 40
Investments Measured at Fair Value (Parenthetical) (Detail) - USD ($) $ in Millions | May 31, 2017 | Feb. 28, 2017 |
Fair Value Disclosures [Abstract] | ||
Accumulated unrealized losses related to investments in unrealized loss position 12 months or longer | $ 0.7 | $ 0.6 |
Fair value of investments with unrealized losses | $ 628.5 | $ 605.9 |
Summary of Stated Maturities of
Summary of Stated Maturities of Investment in Debt Securities (Detail) $ in Thousands | May 31, 2017USD ($) |
Debt Disclosure [Abstract] | |
Total | $ 1,079,124 |
Less than 1 Year | 408,026 |
1-5 Years | 671,098 |
More than 5 Years | $ 0 |
Summary of Effects of Derivativ
Summary of Effects of Derivative Instruments (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Derivative [Line Items] | ||
Total, Fair Value | $ 141 | $ (391) |
Notional value of foreign currency forward contracts not designated as hedges | 45,954 | 34,405 |
Amount of Unrealized Gain (Loss) Recognized in Income on Derivatives | 285 | 521 |
Other Current Assets | ||
Derivative [Line Items] | ||
Assets-foreign currency forward contracts not designated as hedges | 278 | 46 |
Notional value of foreign currency forward contracts not designated as hedges, assets | 18,901 | 6,563 |
Accounts Payable and Accrued Expenses | ||
Derivative [Line Items] | ||
Liabilities-foreign currency forward contracts not designated as hedges | (137) | (437) |
Notional value of foreign currency forward contracts not designated as hedges, liabilities | 27,053 | 27,842 |
Other Income (Expense), Net | Derivative Liabilities | ||
Derivative [Line Items] | ||
Amount of Unrealized Gain (Loss) Recognized in Income on Derivatives | (320) | (678) |
Other Income (Expense), Net | Derivative Assets | ||
Derivative [Line Items] | ||
Amount of Unrealized Gain (Loss) Recognized in Income on Derivatives | $ 605 | $ 1,199 |
Share Based Awards - Additional
Share Based Awards - Additional Information (Detail) - USD ($) | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Fair value assumptions, method used | Black-Scholes-Merton | |
Share-based compensation expense capitalized | $ 0 | $ 0 |
Share-Based Compensation Expens
Share-Based Compensation Expense (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | $ 43,718 | $ 41,275 |
Cost of Revenue | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 3,948 | 4,305 |
Sales and Marketing | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 20,612 | 18,440 |
Research and Development | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 13,447 | 12,002 |
General and Administrative | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | $ 5,711 | $ 6,528 |
Summary of Share-Based Awards G
Summary of Share-Based Awards Granted During Period (Detail) - $ / shares | 3 Months Ended | ||
May 31, 2017 | May 31, 2016 | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 1,204,517 | 1,435,748 | |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 86.72 | $ 75.89 | |
Service-Based Shares and Share Units | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 838,395 | 934,890 | |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 86.17 | $ 75.45 | |
Performance Share Units - Target | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 261,760 | [1] | 360,676 |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 87.99 | $ 76.70 | |
Performance Share Awards | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 104,362 | [2] | 140,182 |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 87.99 | $ 76.70 | |
[1] | Certain executives and senior management were awarded a target number of performance share units ("PSUs"). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company's financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2017. The remaining target number of PSUs can be earned by the grantees depending upon the Company's total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2017. | ||
[2] | Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for the fiscal year ending February 28, 2018 (the "RSA Performance Goal"). If the Company fails to achieve the RSA Performance Goal for the fiscal year ending February 28, 2018, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for the fiscal year ending February 28, 2018, then 25% of the restricted stock vests on or about July 16, 2018, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee's business relationship with the Company has not ceased. |
Summary of Share-Based Awards46
Summary of Share-Based Awards Granted During Period (Parenthetical) (Detail) | 3 Months Ended |
May 31, 2017 | |
Performance Share Units - Target | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Targeted percentage of performance share units earned by executive | 200.00% |
Performance Share Units - Target | Share-based Compensation Award, Tranche One | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting right description | Half of the target number of PSUs can be earned by the grantees depending upon the Company's financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2017. |
Performance Share Units - Target | Share-based Compensation Award, Tranche Two | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting right description | The remaining target number of PSUs can be earned by the grantees depending upon the Company's total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2017. |
Performance Share Awards | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting right description | These shares were awarded subject to the achievement of a specified dollar amount of revenue for the fiscal year ending February 28, 2018 (the “RSA Performance Goal”). If the Company fails to achieve the RSA Performance Goal for the fiscal year ending February 28, 2018, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for the fiscal year ending February 28, 2018, then 25% of the restricted stock vests on or about July 16, 2018, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee’s business relationship with the Company has not ceased. |
Percentage vested after one year if performance conditions achieved | 25.00% |
Reconciliation of Numerators an
Reconciliation of Numerators and Denominators of Earnings Per Share Calculation (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Earnings Per Share [Abstract] | ||
Net income, basic and diluted | $ 73,190 | $ 61,184 |
Weighted average common shares outstanding | 177,243 | 181,168 |
Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares | 2,974 | 3,019 |
Dilutive effect of convertible notes | 1,593 | |
Diluted shares | 181,810 | 184,187 |
Diluted net income per share | $ 0.40 | $ 0.33 |
Earnings Per Share - Additional
Earnings Per Share - Additional Information (Detail) - $ / shares | 3 Months Ended | ||
May 31, 2017 | May 31, 2016 | Oct. 01, 2014 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Exercise price per share | $ 101.65 | $ 101.65 | $ 101.65 |
Warrants | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Number of shares considered anti-dilutive for calculating diluted EPS | 10,965,630 | 10,965,630 |
Shares Considered Anti-Dilutive
Shares Considered Anti-Dilutive for Calculating Diluted EPS (Detail) - shares shares in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Stock Options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of shares considered anti-dilutive for calculating diluted EPS | 14 | 1,081 |
Summary of Revenue, Income (Los
Summary of Revenue, Income (Loss) from Operations, Total Assets and Total Cash, Cash Equivalents and Available-for-Sale Investment Securities by Geographic Segments (Detail) - USD ($) $ in Thousands | 3 Months Ended | ||||
May 31, 2017 | May 31, 2016 | Feb. 28, 2017 | [1] | ||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | $ 676,796 | $ 567,899 | |||
Income (loss) from operations | 87,608 | 75,363 | |||
Total cash, cash equivalents and available-for-sale investment securities | 2,309,581 | 2,119,876 | |||
Total assets | 4,512,436 | 4,112,281 | $ 4,535,185 | ||
Corporate | |||||
Segment Reporting Information [Line Items] | |||||
Income (loss) from operations | [2] | (43,718) | (41,275) | ||
Americas | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 438,380 | 365,723 | |||
Income (loss) from operations | 73,939 | 69,756 | |||
Total cash, cash equivalents and available-for-sale investment securities | 1,186,481 | 1,240,377 | |||
Total assets | 2,863,266 | 2,815,567 | |||
EMEA | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 143,671 | 124,299 | |||
Income (loss) from operations | 29,439 | 25,688 | |||
Total cash, cash equivalents and available-for-sale investment securities | 779,346 | 613,619 | |||
Total assets | 1,129,907 | 892,729 | |||
Asia Pacific | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 94,745 | 77,877 | |||
Income (loss) from operations | 27,948 | 21,194 | |||
Total cash, cash equivalents and available-for-sale investment securities | 343,754 | 265,880 | |||
Total assets | $ 519,263 | $ 403,985 | |||
[1] | Derived from audited financial statements. | ||||
[2] | Amounts represent share-based compensation expense that was not allocated to geographic segments. |
Summary of Revenue from Unaffil
Summary of Revenue from Unaffiliated Customers (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | $ 676,796 | $ 567,899 |
United States, the Company's Country of Domicile | ||
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | 394,542 | 328,529 |
Foreign | ||
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | $ 282,254 | $ 239,370 |
Summary of Tangible Long-Lived
Summary of Tangible Long-Lived Assets (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | |
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | $ 195,281 | $ 189,629 | [1] |
United States, the Company's Country of Domicile | |||
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | 135,119 | 133,492 | |
Foreign | |||
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | $ 60,162 | $ 56,137 | |
[1] | Derived from audited financial statements. |
Segment Reporting - Additional
Segment Reporting - Additional Information (Detail) - Customer | 3 Months Ended | 12 Months Ended | |
May 31, 2017 | May 31, 2016 | Feb. 28, 2017 | |
Accounts Receivable | Credit Concentration Risk | |||
Segment Reporting Information [Line Items] | |||
Concentration risk, percentage | 10.00% | 10.00% | |
Number of customers which accounted for 10% or greater of total accounts receivable | 0 | 0 | |
U.S. Government and Agencies | Subscription Revenues | Customer Concentration Risk | |||
Segment Reporting Information [Line Items] | |||
Concentration risk, percentage | 11.00% | 10.00% |
Summary of Subscription and Ser
Summary of Subscription and Services Revenue by Technology Classes (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Revenue from External Customer [Line Items] | ||
Subscription revenue | $ 596,508 | $ 501,665 |
Training and services revenue | 80,288 | 66,234 |
Total subscription and training and services revenue | 676,796 | 567,899 |
Infrastructure Related Subscriptions | ||
Revenue from External Customer [Line Items] | ||
Subscription revenue | 457,961 | 403,182 |
Application Development Related and Other Emerging Technology Subscriptions | ||
Revenue from External Customer [Line Items] | ||
Subscription revenue | 138,547 | 98,483 |
Consulting Services | ||
Revenue from External Customer [Line Items] | ||
Training and services revenue | 61,488 | 50,310 |
Training Services | ||
Revenue from External Customer [Line Items] | ||
Training and services revenue | $ 18,800 | $ 15,924 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense under operating leases | $ 12.5 | $ 10 |
Business Combinations - Additio
Business Combinations - Additional Information (Detail) - 3scale, Inc. $ in Millions | Jun. 24, 2016USD ($) |
Business Acquisition [Line Items] | |
Cash paid | $ 29.1 |
Goodwill acquired | 16.9 |
Identifiable intangible assets acquired | 13.1 |
Net working capital | $ 0.9 |
Summary of Changes in Goodwill
Summary of Changes in Goodwill (Detail) $ in Thousands | 3 Months Ended | |
May 31, 2017USD ($) | ||
Business Combinations [Abstract] | ||
Goodwill, beginning balance | $ 1,040,709 | [1] |
Impact of foreign currency fluctuations | 6,329 | |
Goodwill, ending balance | $ 1,047,038 | |
[1] | Derived from audited financial statements. |
Convertible Notes - Additional
Convertible Notes - Additional Information (Detail) | Oct. 07, 2014USD ($) | Oct. 01, 2014USD ($)$ / sharesshares | May 31, 2017USD ($)$ / shares | May 31, 2016$ / shares |
Debt Instrument [Line Items] | ||||
Strike price of warrants | $ / shares | $ 101.65 | $ 101.65 | $ 101.65 | |
Purchase of convertible note hedges | $ 148,000,000 | |||
Proceeds from issuance of warrants | $ 79,800,000 | |||
Number of shares of common stock underlying the warrants | shares | 10,965,630 | |||
Fundamental Change | ||||
Debt Instrument [Line Items] | ||||
Repurchase of note principal amount | 100.00% | |||
Default | ||||
Debt Instrument [Line Items] | ||||
Repurchase of note principal amount | 100.00% | |||
0.25% Convertible Senior Notes due 2019 | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, interest rate | 0.25% | 0.25% | ||
Frequency of interest payment | Semiannually | |||
0.25% Convertible Senior Notes due 2019 | Unsecured Debt | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, aggregate principal amount | $ 805,000,000 | |||
Debt instrument, interest rate | 0.25% | |||
Debt instrument, offering date | Oct. 1, 2014 | |||
Debt instrument, maturity date | Oct. 1, 2019 | |||
Frequency of interest payment | Semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2015. | |||
Common stock conversion rate per $1,000 principal amount of notes | 13.6219 | |||
Principal amount per note | $ 1,000 | |||
Debt instrument, convertible, conversion price, per share | $ / shares | $ 73.41 | $ 73.41 |
Components of Convertible Notes
Components of Convertible Notes (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | ||
Debt Instrument [Line Items] | ||||
Net carrying amount | $ 751,173 | $ 745,633 | [1] | |
0.25% Convertible Senior Notes due 2019 | Unsecured Debt | ||||
Debt Instrument [Line Items] | ||||
Liability component: Principal | 805,000 | 805,000 | ||
Less: debt issuance costs | (6,769) | (7,442) | ||
Less: debt discount | (47,058) | (51,925) | ||
Net carrying amount | 751,173 | 745,633 | ||
Equity component | [2] | $ 96,890 | $ 96,890 | |
[1] | Derived from audited financial statements. | |||
[2] | Recorded in the Consolidated Balance Sheets in Additional paid-in capital. |
Schedule of Total Interest Expe
Schedule of Total Interest Expense Recognized Related to Convertible Notes (Detail) - 0.25% Convertible Senior Notes due 2019 - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Debt Instrument [Line Items] | ||
Coupon rate 0.25% per year, payable semiannually | $ 503 | $ 503 |
Amortization of convertible note issuance costs - liability component | 673 | 633 |
Accretion of debt discount | 4,867 | 4,732 |
Total interest expense related to convertible notes | $ 6,043 | $ 5,868 |
Schedule of Total Interest Ex61
Schedule of Total Interest Expense Recognized Related to Convertible Notes (Parenthetical) (Detail) - 0.25% Convertible Senior Notes due 2019 | 3 Months Ended | |
May 31, 2017 | May 31, 2016 | |
Debt Instrument [Line Items] | ||
Coupon rate per year | 0.25% | 0.25% |
Frequency of coupon payment | Semiannually |
Fair Value of Notes Based on In
Fair Value of Notes Based on Inputs Observable in Market (Level 2) and Carrying Value of Debt Instruments (Detail) - USD ($) $ in Thousands | May 31, 2017 | Feb. 28, 2017 | [1] |
Debt Instrument [Line Items] | |||
Carrying value, convertible notes | $ 751,173 | $ 745,633 | |
Fair Value, Inputs, Level 2 | |||
Debt Instrument [Line Items] | |||
Fair value, convertible notes | $ 767,756 | ||
[1] | Derived from audited financial statements. |