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Red Hat Reports Fourth Quarter and Fiscal Year 2013 Results

  Red Hat Reports Fourth Quarter and Fiscal Year 2013 Results

  *Fourth quarter revenue of $348 million, up 17% year-over-year; full fiscal
               year revenue of $1.33 billion, up 17% year-over-year
  *Fourth quarter subscription revenue of $303 million, up 19%
    year-over-year; full fiscal year subscription revenue of $1.15 billion, up
                                19% year-over-year
  *Fourth quarter operating cash flow of $137 million, up 7% year-over-year;
    full fiscal year operating cash flow of $465 million, up 19%
                                  year-over-year
  *Year-end deferred revenue balance exceeds a billion dollars, up 15%
    year-over-year

Business Wire

RALEIGH, N.C. -- March 27, 2013

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source
solutions, today announced financial results for its fiscal fourth quarter and
fiscal year ended February 28, 2013.

Total revenue for the quarter was $348 million, an increase of 17% in U.S.
dollars from the year ago quarter, or 18% measured in constant currency.
Constant currency references in this release are as detailed in the tables
below. Subscription revenue for the quarter was $303 million, up 19% in U.S.
dollars year-over-year, or 20% measured in constant currency. For the full
fiscal year 2013, total revenue was $1.33 billion, up 17% in U.S. dollars
year-over-year, or 20% measured in constant currency, and subscription revenue
was $1.15 billion, up 19% in U.S. dollars year-over-year, or 22% measured in
constant currency.

“For FY13, the growth drivers in our business remained intact, driving record
annual revenue, billings proxy and total backlog up 17%, 14% and over 19%
year-over-year, respectively. Within total backlog, the value of customer
contracts to be billed in the future and not reflected in our financial
statements increased to over $280 million, or up over 40%, as customers
increased their commitments to Red Hat technologies in the data center,”
stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “We
continued to see momentum with large deals in Q4, closing a record number of
deals in excess of $5 million and $10 million. We now provide solutions to
over 90% of Fortune 500 companies as well as tens of thousands of smaller
companies. New customer additions coupled with renewing and up-selling our
existing customer base enabled us to exceed the billion dollar milestone in
both subscription revenue and deferred revenues for the first time.”

GAAP operating income for the fourth quarter and the full fiscal year 2013 was
$50 million and $201 million, respectively. GAAP operating margin was 14.4% in
the fourth quarter and 15.1% for the full year. After adjusting for stock
compensation, amortization expenses and certain facility exit costs, as
detailed in the tables below, non-GAAP operating income for the quarter was
$84 million, or a 24.0% operating margin. Full year non-GAAP operating income
was $326 million and full year non-GAAP operating margin was 24.6%.

GAAP net income for the fourth quarter was $43 million, or $0.22 per diluted
share, compared with $35 million, or $0.18 per diluted share, for the prior
quarter and $36 million, or $0.18 per diluted share, in the year ago quarter.
Non-GAAP adjusted net income for the fourth quarter was $70 million, or $0.36
per diluted share, after adjusting for stock compensation and amortization
expenses, as detailed in the tables below. This compares to non-GAAP adjusted
net income of $57 million, or $0.29 per diluted share in the prior quarter,
and $57 million, or $0.29 per diluted share in the year ago quarter. Both the
GAAP and non-GAAP results for the fiscal 2013 fourth quarter benefited by
approximately $0.03 per share as a result of the retroactive reinstatement in
January 2013 of the U.S. research tax credit.

For the full year, GAAP net income was $150 million or $0.77 per diluted
share, compared with $147 million or $0.75 per diluted share in the prior
year. After adjusting for stock compensation, amortization expenses and
certain facility exit costs, as detailed in the tables below, non-GAAP
adjusted net income for the year was $240 million or $1.23 per diluted share,
compared to $216 million or $1.10 per diluted share for the previous fiscal
year.

Operating cash flow totaled $137 million for the fourth quarter and $465
million for the full year. At the end of the fiscal year, the company’s total
deferred revenue balance was $1.09 billion, an increase of 15% on a
year-over-year basis and 10% sequentially. Cash and investments at February
28, 2013 totaled $1.32 billion after repurchasing approximately 687 thousand
shares of common stock in the fourth quarter for approximately $36 million.
For fiscal year 2013, Red Hat repurchased approximately 2.3 million shares, or
approximately $121 million of common stock.

“During fiscal year 2013, we invested aggressively in new product areas such
as storage, cloud computing, management and big data through new internal
initiatives and three acquisitions in the second half of the fiscal year.
Despite these investments, we generated over 9% year-over-year growth in
non-GAAP operating income and 19% full year operating cash flow growth,”
stated Charlie Peters, Executive Vice President and Chief Financial Officer of
Red Hat. “These investments enhance our strategic position in the data center
and increase our addressable market.”

The billings proxy, which we define as total revenue plus the change in
deferred revenue as reflected on the Consolidated Statement of Cash Flows, was
$1.49 billion for the fiscal year 2013 compared with $1.31 billion for the
prior fiscal year, an increase of 14%. Total backlog for fiscal year 2013 was
in excess of $1.37 billion or up over 19% year-over-year. We define total
backlog as the value of non-cancellable subscription and service contracts,
including total deferred revenue, which is billed, plus the value of customer
contracts to be billed in the future not reflected in our financial
statements. The portion of total backlog to be billed in the future not
reflected in our financial statements was in excess of $280 million as of
February 28, 2013, compared with in excess of $200 million for the fiscal year
ending February 29, 2012, up over 40% year-over-year.

Additional information on Red Hat's reported results, including a
reconciliation of the non-GAAP adjusted results, are included in the financial
tables below. A live webcast of Red Hat's results will begin at 5:00 pm ET
today and can be accessed by the general public at Red Hat's investor
relations website at http://investors.redhat.com. A replay of the webcast will
be available shortly after the live event has ended.

About Red Hat, Inc.

Red Hat is the world's leading provider of open source software solutions,
using a community-powered approach to reliable and high-performing cloud,
Linux, middleware, storage and virtualization technologies. Red Hat also
offers award-winning support, training, and consulting services. As a
connective hub in a global network of enterprises, partners, and open source
communities, Red Hat helps create relevant, innovative technologies that
liberate resources for growth and prepare customers for the future of IT.
Learn more: http://www.redhat.com.

Forward-Looking Statements

Certain statements contained in this press release may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements provide current
expectations of future events based on certain assumptions and include any
statement that does not directly relate to any historical or current fact.
Actual results may differ materially from those indicated by such
forward-looking statements as a result of various important factors,
including: risks related to delays or reductions in information technology
spending; the effects of industry consolidation; the ability of the Company to
compete effectively; the integration of acquisitions and the ability to market
successfully acquired technologies and products; uncertainty and adverse
results in litigation and related settlements; the inability to adequately
protect Company intellectual property and the potential for infringement or
breach of license claims of or relating to third party intellectual property;
the ability to deliver and stimulate demand for new products and technological
innovations on a timely basis; risks related to data and information security
vulnerabilities; ineffective management of, and control over, the Company's
growth and international operations; fluctuations in exchange rates; and
changes in and a dependence on key personnel, as well as other factors
contained in our most recent Quarterly Report on Form 10-Q (copies of which
may be accessed through the Securities and Exchange Commission's website at
http://www.sec.gov), including those found therein under the captions "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations". In addition to these factors, actual future
performance, outcomes, and results may differ materially because of more
general factors including (without limitation) general industry and market
conditions and growth rates, economic and political conditions, governmental
and public policy changes and the impact of natural disasters such as
earthquakes and floods. 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 this press release.

Red Hat, Inc. Red Hat, the Shadowman logo and JBoss are registered trademarks
of Red Hat, Inc. in the U.S. and other countries. Linux is a registered
trademark of Linus Torvalds.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                                                           
                                                                    
                        Three Months Ended          Twelve Months Ended
                        February      February      February        February
                        28,           29,           28,             29,
                        2013          2012          2013            2012 (1)
Revenue:
                                                                    
Subscriptions           $302,783      $255,167      $1,148,341      $965,575
Training and            45,101        41,844        180,476         167,528
services
                                                                    
                                                                    
Total subscription,
training and            347,884       297,011       1,328,817       1,133,103
services revenue
                                                                    
Cost of revenue:
                                                                    
Subscriptions           22,400        17,360        80,340          66,237
Training and            31,203        26,912        120,260         112,311
services
                                                                    
                                                                    
Total cost of
subscription,           53,603        44,272        200,600         178,548
training and
services revenue
                                                                    
                                                                    
Total gross profit      294,281       252,739       1,128,217       954,555
                                                                    
Operating expense:
Sales and marketing     136,314       115,018       514,554         419,635
Research and            71,248        55,147        263,150         208,662
development
General and             36,487        34,069        146,333         126,345
administrative
Facility exit costs     -             -             3,142           -
                                                                    
Total operating         244,049       204,234       927,179         754,642
expense
                                                                    
Income from             50,232        48,505        201,038         199,913
operations
Interest income         1,861         2,279         8,245           8,418
Other income            (34)          (155)         469             (322)
(expense), net
                                                                    
                                                                    
Income before
provision for           52,059        50,629        209,752         208,009
income taxes
Provision for           9,086         14,661        59,548          61,383
income taxes
                                                                    
Net income              $42,973       $35,968       $150,204        $146,626
                                                                    
Net income per
share:
Basic                   $0.22         $0.19         $0.78           $0.76
Diluted                 $0.22         $0.18         $0.77           $0.75
                                                                    
Weighted average
shares outstanding:
Basic                   193,207       193,117       193,147         193,151
Diluted                 195,133       195,879       195,804         196,451
                                                                    
                                                                    
(1) Derived from
audited financial
statements

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
                                                           
(In thousands)
                                                               
ASSETS
                                              February 28,     February 29,
                                              2013             2012 (1)
                                              (Unaudited)
Current assets:
Cash and cash equivalents                     $487,084         $549,217
Investments in debt and equity securities     392,381          264,298
Accounts receivable, net                      302,942          255,180
Deferred tax assets, net                      88,765           69,765
Prepaid expenses                              94,421           81,266
Other current assets                          3,156            1,629
                                                               
Total current assets                          1,368,749        1,221,355
                                                               
Property and equipment, net                   141,586          92,065
Goodwill                                      690,911          591,563
Identifiable intangibles, net                 142,243          100,638
Investments in debt securities                438,908          446,838
Other assets, net                             31,263           38,640
                                                               
Total assets                                  $2,813,660       $2,491,099
                                                               
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses         $154,202         $114,078
Deferred revenue                              830,486          711,408
Other current obligations                     1,024            819
                                                               
Total current liabilities                     985,712          826,305
                                                               
Long term deferred revenue                    259,466          235,328
Other long term obligations                   48,321           30,649
Stockholders' equity:
Common stock                                  23               23
Additional paid-in capital                    1,802,899        1,709,082
Retained earnings                             541,880          391,676
Treasury stock, at cost                       (816,674)        (696,012)
Accumulated other comprehensive loss          (7,967)          (5,952)
                                                               
Total stockholders' equity                    1,520,161        1,398,817
                                                               
Total liabilities and stockholders' equity    $2,813,660       $2,491,099
                                                               
                                                               
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                                            
                                                                     
                         Three Months Ended            Twelve Months Ended
                         February       February       February      February
                         28,            29,            28,           29,
                         2013           2012           2013          2012 (1)
                                                                     
Cash flows from
operating
activities:
Net income               $42,973        $35,968        $150,204      $146,626
Adjustments to
reconcile net income
to net cash provided
by
operating
activities:
Depreciation and         17,568         13,094         62,341        51,372
amortization
Share-based              25,954         23,557         98,698        79,267
compensation expense
Deferred income          10,101         9,477          39,849        45,702
taxes
Excess tax benefits
from share-based         (6,319)        (5,633)        (34,219)      (29,931)
payment arrangements
Net amortization of
bond premium on          1,795          1,970          6,889         6,518
available-for-sale
debt securities
Other                    (233)          (636)          (2,626)       (1,186)
Changes in operating
assets and
liabilities net of
effects of
acquisitions:
Accounts receivable      (47,447)       (46,981)       (46,913)      (70,410)
Prepaid expenses         (10,411)       (12,866)       (14,726)      (19,190)
Accounts payable and     (2,612)        (11,060)       40,196        5,986
accrued expenses
Deferred revenue         106,059        120,688        162,574       176,855
Other                    (541)          433            3,030         274
                                                                     
Net cash provided by     136,887        128,011        465,297       391,883
operating activities
                                                                     
Cash flows from
investing
activities:
Purchase of
available-for-sale       (244,341)      (231,958)      (875,428)     (962,974)
debt securities
Proceeds from sales
and maturities of        153,779        213,318        741,301       791,585
available-for-sale
debt securities
Acquisition of
business, net of         (104,262)      -              (135,501)     (135,210)
cash acquired
Purchase of other        (1,927)        (1,104)        (34,367)      (5,349)
intangible assets
Purchase of property     (21,119)       (14,974)       (85,671)      (46,269)
and equipment
Other                    353            633            617           (643)
                                                                     
Net cash used in         (217,517)      (34,085)       (389,049)     (358,860)
investing activities
                                                                     
Cash flows from
financing
activities:
Excess tax benefits
from share-based         6,319          5,633          34,219        29,931
payment arrangements
Proceeds from
exercise of common       668            1,259          11,478        16,812
stock options
Purchase of treasury     (35,761)       (76,268)       (120,662)     (133,220)
stock
Payments related to
net settlement of        (4,373)        (4,229)        (49,984)      (36,332)
employee share-based
compensation awards
Payments on other        (335)          (267)          (1,016)       (1,027)
borrowings
                                                                     
Net cash used in         (33,482)       (73,872)       (125,965)     (123,836)
financing activities
                                                                     
Effect of foreign
currency exchange        (4,715)        2,498          (12,416)      (2,600)
rates on cash and
cash equivalents
Net increase
(decrease) in cash       (118,827)      22,552         (62,133)      (93,413)
and cash equivalents
Cash and cash
equivalents at           605,911        526,665        549,217       642,630
beginning of the
period
                                                                     
Cash and cash
equivalents at end       $487,084       $549,217       $487,084      $549,217
of period
                                                                     
                                                                     
(1) Derived from
audited financial
statements

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
                                                            
                                                                     
Non cash share-based compensation expense included in Consolidated Statements
of Operations:
                                                                     
                            Three Months Ended         Twelve Months Ended
                            February      February     February      February
                            28,           29,          28,           29,
                            2013          2012         2013          2012
                                                                     
Cost of revenue             $2,656        $2,003       $9,433        $7,880
Sales and marketing         8,944         6,231        32,906        25,060
Research and                7,606         7,126        29,647        21,570
development
General and                 6,748         8,197        26,712        24,757
administration
Total share-based           $25,954       $23,557      $98,698       $79,267
compensation expense
                                                                     
                                                                     
Amortization of intangible assets expense included in Consolidated Statements
of Operations:
                                                                     
                            Three Months Ended         Twelve Months Ended
                            February      February     February      February
                            28,           29,          28,           29,
                            2013          2012         2013          2012
                                                                     
Cost of revenue             $2,695        $670         $5,943        $3,533
Sales and marketing         2,144         2,473        8,416         8,348
Research and                959           940          3,836         4,194
development
General and                 1,528         1,058        5,328         3,674
administration
Total amortization of
intangible assets           $7,326        $5,141       $23,523       $19,749
expense
                                                                     
                                                                     
Facility exit costs included in Consolidated Statements of Operations:
                                                                     
                            Three Months Ended         Twelve Months Ended
                            February      February     February      February
                            28,           29,          28,           29,
                            2013          2012         2013          2012
                                                                     
Facility exit costs         -             -            $3,142        -
                                                                     
                                                                     
                                                                     
                            Three Months Ended         Twelve Months Ended
                            February      February     February      February
                            28,           29,          28,           29,
                            2013          2012         2013          2012
                                                                     
GAAP net income             $42,973       $35,968      $150,204      $146,626
                                                                     
Provision for income        9,086         14,661       59,548        61,383
taxes
                                                                     
GAAP income before
provision for income        $52,059       $50,629      $209,752      $208,009
taxes
                                                                     
Add: Non-cash
share-based                 25,954        23,557       98,698        79,267
compensation expense
Add: Amortization of        7,326         5,141        23,523        19,749
intangible assets
Add: Facility exit          -             -            3,142         -
costs
                                                                     
Non-GAAP adjusted
income before               $85,339       $79,327      $335,115      $307,025
provision for income
taxes
                                                                     
Provision for income        15,213        22,082       95,139        90,603
taxes (1)
                                                                     
Non-GAAP adjusted net
income (basic and           $70,126       $57,245      $239,976      $216,422
diluted)
                                                                     
Non-GAAP adjusted net
income per share:
Basic                       $0.36         $0.30        $1.24         $1.12
Diluted                     $0.36         $0.29        $1.23         $1.10
                                                                     
                                                                     
(1) Provision for
income taxes:
Non-GAAP adjusted net
income before income        $85,339       $79,327      $335,115      $307,025
tax provision
Estimated annual            17.8%         27.8%        28.4%         30.2%
effective tax rate
Non-GAAP provision for
income taxes before         $15,213       $22,082      $95,139       $92,668
discrete tax benefit
Discrete tax benefit        -             -            -             2,065
Provision for income
taxes on Non-GAAP           $15,213       $22,082      $95,139       $90,603
adjusted net income
                                                                     

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
                                                             
                                                                      
                                                                      
Reconciliation of GAAP results to non-GAAP adjusted results
                                                                      
                   Three Months Ended             Twelve Months Ended
                   February        February       February 28,        February
                   28,             29,                                29,
                   2013            2012           2013                2012
                                                                      
GAAP gross         $294,281        $252,739       $1,128,217          $954,555
profit
                                                                      
Add: Non-cash
share-based        2,656           2,003          9,433               7,880
compensation
expense
Add:
Amortization       2,695           670            5,943               3,533
of intangible
assets
                                                                      
Non-GAAP gross     $299,632        $255,412       $1,143,593          $965,968
profit
                                                                      
Non-GAAP gross     86%             86%            86%                 85%
margin
                                                                      
                                                                      
                   Three Months Ended             Twelve Months Ended
                   February        February       February 28,        February
                   28,             29,                                29,
                   2013            2012           2013                2012
                                                                      
GAAP operating     $244,049        $204,234       $927,179            $754,642
expenses
                                                                      
Deduct:
Non-cash
share-based        (23,298)        (21,554)       (89,265)            (71,387)
compensation
expense
Deduct:
Amortization       (4,631)         (4,471)        (17,580)            (16,216)
of intangible
assets
Deduct:
Facility exit      -               -              (3,142)             -
costs
                                                                      
Non-GAAP
adjusted           $216,120        $178,209       $817,192            $667,039
operating
expenses
                                                                      
                                                                      
                   Three Months Ended             Twelve Months Ended
                   February        February       February 28,        February
                   28,             29,                                29,
                   2013            2012           2013                2012
                                                                      
GAAP operating     $50,232         $48,505        $201,038            $199,913
income
                                                                      
Add: Non-cash
share-based        25,954          23,557         98,698              79,267
compensation
expense
Add:
Amortization       7,326           5,141          23,523              19,749
of intangible
assets
Add: Facility      -               -              3,142               -
exit costs
                                                                      
Non-GAAP
adjusted           $83,512         $77,203        $326,401            $298,929
operating
income
                                                                      
Non-GAAP
adjusted           24.0%           26.0%          24.6%               26.4%
operating
margin
                                                                      
                                                                      
                   Three Months Ended             
                   February        February       Year-Over-Year
                   28,             29,
                   2013            2012           Growth Rate
                                                                      
GAAP
subscription       $302,783        $255,167       18.7%
revenue
Adjustment for
currency           2,957           -
impact
Non-GAAP
subscription
revenue on a       $305,740        $255,167       19.8%
constant
currency basis
                                                                      
GAAP training
and services       $45,101         $41,844        7.8%
revenue
Adjustment for
currency           308             -
impact
Non-GAAP
training and
services           $45,409         $41,844        8.5%
revenue on a
constant
currency basis
                                                                      
GAAP total
subscription,
training and       $347,884        $297,011       17.1%
services
revenue
Adjustment for
currency           3,265           -
impact
Non-GAAP total
subscription,
training and
services           $351,149        $297,011       18.2%
revenue on a
constant
currency basis
                                                                      
                                                                      
                   Twelve Months Ended            
                   February        February       Year-Over-Year
                   28,             29,
                   2013            2012           Growth Rate
                                                                      
GAAP
subscription       $1,148,341      $965,575       18.9%
revenue
Adjustment for
currency           28,220          -
impact
Non-GAAP
subscription
revenue on a       $1,176,561      $965,575       21.9%
constant
currency basis
                                                                      
GAAP training
and services       $180,476        $167,528       7.7%
revenue
Adjustment for
currency           4,667           -
impact
Non-GAAP
training and
services           $185,143        $167,528       10.5%
revenue on a
constant
currency basis
                                                                      
GAAP total
subscription,
training and       $1,328,817      $1,133,103     17.3%
services
revenue
Adjustment for
currency           32,887          -
impact
Non-GAAP total
subscription,
training and
services           $1,361,704      $1,133,103     20.2%
revenue on a
constant
currency basis

Contact:

Red Hat, Inc.
Media Contact:
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
or
Investor Relations:
Tom McCallum, 919-754-4630
tmccallum@redhat.com