Exhibit 99.1
Red Hat Reports Fiscal 2007 Second Quarter Results
-- 52% revenue growth
-- 6th consecutive quarter adding more than 10,000 new customers
-- 18th consecutive quarter of sequential growth in total revenue
RALEIGH, N.C.--(BUSINESS WIRE)--September 26, 2006--Red Hat, Inc.
(NASDAQ:RHAT), the world's leading provider of open source solutions to the
enterprise, today announced financial results for its fiscal 2007 second
quarter.
Total revenue for the quarter was $99.7 million, an increase of 52% from
the year-ago quarter and 19% from the prior quarter. Subscription revenue was
$84.9 million, up 56% year-over-year and 19% sequentially. JBoss-related revenue
of $7 million was at the top of management's previously provided guidance.
Net income for the quarter was $11.0 million or $0.05 per diluted share
compared with $16.7 million or $0.09 per diluted share for the second quarter of
the last fiscal year. Due to differences in the accounting treatment for taxes
and stock compensation expense between fiscal 2006 and 2007, net income is not
directly comparable between these periods. After adjusting for these accounting
differences, non-GAAP adjusted net income for the second quarter of fiscal 2007
was $23.7 million, or $0.11 per diluted share. This compares to non-GAAP
adjusted net income of $17.7 million, or $0.09 per diluted share in the second
quarter of the last fiscal year.
At quarter end, the company's total deferred revenue balance was $284.1
million, an increase of $29.4 million, or 12% when compared to the end of the
last fiscal quarter.
Other highlights from the quarter included:
-- Quarterly gross margin improved to 84% from 82% in the year-ago period.
-- Red Hat Enterprise Linux OEM revenue grew 90% year-over-year.
-- Total cash and investments as of August 31, 2006 were $1.0 billion.
"The second quarter was one of intense focus on integrating our recent
acquisitions in Argentina, Brazil, India and, of course, JBoss," stated Charlie
Peters, Executive Vice President and Chief Financial Officer. "We are pleased
with the pace and progress of our integration work and believe that results in
subsequent quarters will benefit from the investments in employee time and
expense made in Q2. Revenue grew nicely and we expect the recent introduction of
the Red Hat Application Stack will help continue that trend. We expect operating
results and cash flow will improve in the second half of fiscal 2007 since much
of the heavy integration work is behind us already."
"Our better than expected revenue and earnings per share speak to the
ongoing demand for open source solutions that we continue to see worldwide,"
stated Dion Cornett, Vice President of Investor Relations. "Moreover, the
particular strength we saw in hardware OEM revenue growth stands in stark
contrast to the reported weakness experienced by server suppliers this past
quarter. We feel this difference highlights the value Red Hat is able to provide
that extends beyond mere box counts."
Additional information on Red Hat's reported results, including a
reconciliation of the non-GAAP adjusted results, are included in the financial
tables below.
About Red Hat, Inc.
Red Hat, the world's leading open source solutions provider, is
headquartered in Raleigh, NC with offices spanning the globe. CIOs and other
senior-level IT executives have ranked Red Hat as the industry's most valued
vendor for two consecutive years in the CIO Insight Magazine Vendor Value study.
Red Hat is leading Linux and open source solutions into the mainstream by making
high quality, low cost technology accessible. Red Hat provides operating system
software along with applications, management and middleware solutions, including
JBoss Enterprise Middleware Suite (JEMS). Red Hat is accelerating the shift to
service-oriented architectures (SOA) and enabling the next generation of
web-enabled applications running on a low-cost, secure open source platform. Red
Hat also offers support, training and consulting services to its customers
worldwide and through top-tier partnerships. Red Hat's open source strategy
offers customers a long term plan for building infrastructures that are based on
and leverage open source technologies with focus on security and ease of
management. Learn more: http://www.redhat.com.
Forward Looking Statements
Certain statements contained in this press release may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any
statement that does not directly relate to any historical or current fact.
Actual results may differ materially from those indicated by such
forward-looking statements as a result of various important factors, including:
risks related to the integration of acquisitions; the ability of the Company to
effectively compete; the inability to adequately protect Company intellectual
property and the potential for infringement or breach of license claims of or
relating to third party intellectual property; risks related to data and
information security vulnerabilities; ineffective management of, and control
over, the Company's growth and international operations; adverse results in
litigation; the dependence on key personnel as well as other factors contained
in our most recent Quarterly Report on Form 10-Q (copies of which may be
accessed through the Securities and Exchange Commission's website at
http://www.sec.gov), including those found therein under the captions "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations". In addition, the forward-looking statements included in
this press release represent the Company's views as of the date of this press
release and these views could change. However, while the Company may elect to
update these forward-looking statements at some point in the future, the Company
specifically disclaims any obligation to do so. These forward-looking statements
should not be relied upon as representing the Company's views as of any date
subsequent to the date of the press release.
LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered
trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
Three Months Ended Six Months Ended
------------------- -------------------
Aug 31, Aug 31, Aug 31, Aug 31,
2006 2005 2006 2005
------------------- -------------------
Revenue:
Subscriptions $ 84,947 $ 54,327 $156,439 $103,568
Training and services 14,726 11,391 27,237 22,930
--------- --------- --------- ---------
Total subscription,
training and services
revenue 99,673 65,718 183,676 126,498
--------- --------- --------- ---------
Cost of revenue:
Subscriptions 7,386 5,003 13,382 10,836
Training and services 9,034 6,589 16,484 13,384
--------- --------- --------- ---------
Total cost of subscription,
training and services
revenue 16,420 11,592 29,866 24,220
--------- --------- --------- ---------
Total gross profit 83,253 54,126 153,810 102,278
Operating expense:
Sales and marketing 37,807 20,478 68,308 40,793
Research and development 18,068 10,450 31,883 20,298
General and administrative 17,926 11,271 31,555 21,614
--------- --------- --------- ---------
Total operating expense 73,801 42,199 131,746 82,705
--------- --------- --------- ---------
Income from operations 9,452 11,927 22,064 19,573
Other income (expense), net 9,573 8,220 20,275 15,956
Interest expense (1,490) (1,556) (2,974) (3,122)
--------- --------- --------- ---------
Income before provision for
income taxes 17,535 18,591 39,365 32,407
Provision for income taxes 6,488 1,859 14,565 3,241
--------- --------- --------- ---------
Net income $ 11,047 $ 16,732 $ 24,800 $ 29,166
========= ========= ========= =========
Net income-diluted $ 12,000 $ 18,079 $ 26,705 $ 31,889
========= ========= ========= =========
Net income per share:
Basic $ 0.06 $ 0.09 $ 0.13 $ 0.16
Diluted $ 0.05 $ 0.09 $ 0.12 $ 0.15
Weighted average shares
outstanding:
Basic 190,292 177,208 186,936 176,995
Diluted 219,940 208,583 217,348 207,894
Diluted net income per share
computation:
GAAP Net income, basic $ 11,047 $ 16,732 $ 24,800 $ 29,166
Interest expense on convertible
debentures, net of related
GAAP tax effects 464 654 927 1326
Amortization of debt issuance
costs, net of related GAAP tax
effects 489 693 978 1397
GAAP Net income, diluted $ 12,000 $ 18,079 $ 26,705 $ 31,889
========= ========= ========= =========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Aug 31, February 28,
2006 2006
----------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 568,181 $ 267,547
Investments in debt securities 269,775 537,324
Accounts receivable, net 70,346 59,792
Prepaid expenses and other current assets 27,859 16,576
----------- ------------
Total current assets 936,161 881,239
Property and equipment, net 40,055 35,822
Goodwill 343,122 75,942
Identifiable intangibles, net 90,958 13,467
Investments in debt securities 196,002 272,669
Other assets, net 34,273 35,102
----------- ------------
Total assets $1,640,571 $1,314,241
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,642 $ 5,627
Accrued expenses 32,858 31,960
Deferred revenue 211,400 162,934
Other current obligations 493 401
----------- ------------
Total current liabilities 252,393 200,922
Deferred lease credits 5,418 4,994
Long term deferred revenue 72,709 60,554
Other long term obligations 89 213
Convertible debentures 570,000 570,000
Stockholders' equity:
Minority interest - 771
Common stock 19 19
Additional paid-in capital 997,708 763,906
Deferred compensation - (2,418)
Accumulated deficit (127,199) (152,113)
Treasury stock, at cost (125,656) (124,125)
Accumulated other comprehensive loss (4,910) (8,482)
----------- ------------
Total stockholders' equity 739,962 477,558
----------- ------------
Total liabilities and stockholders' equity $1,640,571 $1,314,241
=========== ============
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
--------------------- ---------------------
Aug 31, Aug 31, Aug 31, Aug 31,
2006 2005 2006 2005
--------------------- ---------------------
Cash flows from operating
activities:
Net income $ 11,047 $ 16,732 $ 24,800 $ 29,166
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 6,754 3,751 11,098 7,298
Deferred income taxes 4,092 (606) 9,502 (799)
Share-based compensation
expense 8,300 1,310 15,926 2,495
Excess tax benefits from
share-based payment
arrangements (740) - (2,875) -
Gain from repurchase of
convertible debentures - (1,544) - (3,140)
Provision for doubtful
accounts 201 57 702 141
Amortization of debt
issuance costs 752 770 1,504 1,552
Other (12) 993 (289) 1,018
Changes in operating assets and
liabilities net of effects of
acquisitions:
Accounts receivable 3,311 (9,837) (181) (9,241)
Prepaid expenses and
other current assets (1,115) 615 (2,415) (790)
Accounts payable 399 735 509 (3,367)
Accrued expenses (1,707) 5,049 (157) 7,456
Deferred revenue 12,623 27,760 38,079 50,246
Other assets (21) (29) 53 325
Net cash provided by
operating activities 43,884 45,756 96,256 82,360
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investment
securities (112) (130,577) (7,444) (139,177)
Proceeds from sales and
maturities of investment
securities 78,021 19,731 356,052 111,017
Acquisitions of
businesses, net of cash
acquired (147,651) (2,500) (149,562) (2,500)
Purchase of other
investments - - - (767)
Purchase of property and
equipment (5,107) (4,716) (8,985) (7,988)
---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities (74,849) (118,062) 190,061 (39,415)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Excess tax benefits from
share-based payment
arrangements 740 - 2,875 -
Repurchase of convertible
debentures - (18,091) - (26,301)
Structured stock
repurchases - - - 1,031
Net proceeds from issuance
of common stock under
Employee Stock Purchase
Plan - 770 306 1,497
Proceeds from exercise of
common stock options 4,354 5,418 11,684 7,124
Purchase of treasury stock (1,359) (11,560) (1,532) (16,688)
Other financing (31) 415 (31) 83
---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities 3,704 (23,048) 13,302 (33,254)
---------- ---------- ---------- ----------
Effect of foreign currency
exchange rates on cash and
cash equivalents (1,475) (958) 1,015 (1,804)
Net increase in cash and
cash equivalents (28,736) (96,312) 300,634 7,887
Cash and cash equivalents
at beginning of the period 596,917 244,368 267,547 140,169
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 568,181 $ 148,056 $ 568,181 $ 148,056
========== ========== ========== ==========
Note: certain prior year amounts have been reclassified to conform
with current year presentation.
RED HAT, INC.
NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF GAAP RESULTS
TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
Non cash share-based compensation expense included in Consolidated
Statements of Operations:
Three Months Ended Six Months Ended
------------------ -----------------
Aug 31, Aug 31, Aug 31, Aug 31,
2006 2005 2006 2005
------------------ -----------------
Cost of revenue $ 539 $ - $ 1,049 $ -
Sales and marketing 2,455 19 4,572 31
Research and development 1,771 53 3,268 105
General and administration 3,535 1,238 7,037 2,359
--------- -------- -------- --------
Total stock based compensation
expense $ 8,300 $ 1,310 $15,926 $ 2,495
========= ======== ======== ========
Reconciliation of GAAP Results to non-GAAP
adjusted Results (for prior year
comparison purposes only)
Three Months Ended Six Months Ended
------------------ -----------------
Aug 31, Aug 31, Aug 31, Aug 31,
2006 2005 2006 2005
------------------ -----------------
GAAP Net income $11,047 $16,732 $24,800 $29,166
GAAP Provision for income taxes 6,488 1,859 14,565 3,241
GAAP Income before provision for
income taxes $17,535 $18,591 $39,365 $32,407
Add: Share-based compensation per
FAS 123R (Aug 06 only) 8,300 1,310 15,926 2,495
Deduct: Intrinsic value of stock
options per APB No. 25 (870) (1,310) (1,686) (2,495)
--------- --------------------------
Incremental non-cash share-based
compensation expense 7,430 0 14,240 0
Non-GAAP adjusted income before
provision for income taxes $24,965 $18,591 $53,605 $32,407
Non-GAAP cash provision for income
taxes $ 1,248 $ 930 $ 2,680 $ 1,620
--------- -------- -------- --------
Non-GAAP adjusted net income $23,717 $17,661 $50,925 $30,787
========= ======== ======== ========
Non-GAAP adjusted net income-
diluted $25,109 $19,083 $53,708 $33,661
========= ======== ======== ========
Non-GAAP adjusted net income per
share:
Basic $ 0.12 $ 0.10 $ 0.27 $ 0.17
Diluted $ 0.11 $ 0.09 $ 0.25 $ 0.16
Non-GAAP diluted net income per
share computation:
Non-GAAP adjusted net income $23,717 $17,661 $50,925 $30,787
Interest expense on convertible
debentures, net of related 5%
cash tax effects 677 691 1,354 1,400
Amortization of debt issuance
costs, net of related 5% cash tax
effects 715 731 1,429 1,474
Non-GAAP adjusted net income-
diluted $25,109 $19,083 $53,708 $33,661
========= ======== ======== ========
CONTACT: Red Hat, Inc.
Investor Contact:
Linda Brewton, 919-754-4476
lbrewton@redhat.com
or
Media Contact:
Leigh Day, 919-754-4369
lday@redhat.com