Red Hat Reports First Quarter Results

  Red Hat Reports First Quarter Results

         *First quarter revenue of $363 million, up 15% year-over-year
  *First quarter subscription revenue of $316 million, up 16% year-over-year
  *First quarter operating cash flow of $142 million, up 14% year-over-year

Business Wire

RALEIGH, N.C. -- June 19, 2013

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source
solutions, today announced financial results for its fiscal year 2014 first
quarter ended May 31, 2013.

Total revenue for the quarter was $363 million, an increase of 15% in U.S.
dollars from the year ago quarter, or 17% measured in constant currency.
Constant currency references in this release are as detailed in the tables
below. Subscription revenue for the quarter was $316 million, up 16% in U.S.
dollars year-over-year, or 18% measured in constant currency.

“The first quarter was a solid start to Fiscal 2014, with both revenue and
profitability coming in above the high-end of our guidance. We delivered
mid-teens revenue growth driven by customer demand for innovative open source
technologies based on a high-value subscription model,” stated Jim Whitehurst,
President and Chief Executive Officer of Red Hat. “In Q1, we continued to
execute against our strategy of significantly expanding our addressable market
in the new cloud-centric data center."

GAAP operating income for the first quarter was $57 million, up 11%
year-over-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 first quarter was $87 million, up 7% year-over-year.
For the first quarter, GAAP operating margin was 15.6% and non-GAAP operating
margin was 23.9%.

Net income for the quarter was $40 million, or $0.21 per diluted share,
compared with $37 million, or $0.19 per diluted share, in the year ago
quarter. After adjusting for stock compensation, amortization expenses and
certain facility exit costs, as detailed in the tables below, non-GAAP net
income for the quarter was $62 million, or $0.32 per diluted share, as
compared to $58 million, or $0.30 per diluted share, in the year ago quarter.

Operating cash flow was $142 million for the first quarter, as compared to
$124 million in the year ago quarter. At quarter end, the company’s total
deferred revenue balance was $1.06 billion, an increase of 16% on a
year-over-year basis. Total cash, cash equivalents and investments as of May
31, 2013 was $1.22 billion after repurchasing approximately $179 million, or
approximately 3.6 million shares, of common stock in the first quarter.

“During the first quarter, we delivered solid growth in total revenue and
subscription revenue. In addition, quarterly operating cash flow grew to a
record $142 million. At the same time, we continued to invest in our long-term
growth initiatives around the open hybrid cloud to deliver new technologies,
in particular by ramping-up spending in R&D for cloud management, Red Hat
Enterprise Linux OpenStack Platform and Red Hat’s OpenShift
platform-as-a-service technologies,” stated Charlie Peters, Executive Vice
President and Chief Financial Officer of Red Hat.

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 Annual Report on Form 10-K (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, the Shadowman logo, JBoss and OpenShift are registered trademarks of
Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark
 of Linus Torvald and OpenStack is a registered trademark of OpenStack, LLC.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                                                                
                                                                      
                                                         Three Months Ended
                                                         May 31,      May 31,
                                                         2013         2012
Revenue:
                                                                      
Subscriptions                                            $315,817     $272,571
Training and services                                    47,442       42,160
                                                                      
Total subscription, training and services revenue        363,259      314,731
                                                                      
Cost of revenue:
                                                                      
Subscriptions                                            23,375       17,940
Training and services                                    32,682       28,079
                                                                      
Total cost of subscription, training and services        56,057       46,019
revenue
                                                                      
Total gross profit                                       307,202      268,712
                                                                      
Operating expense:
Sales and marketing                                      142,444      120,870
Research and development                                 73,802       59,880
General and administrative                               34,333       33,912
Facility exit costs                                      -            3,142
                                                                      
Total operating expense                                  250,579      217,804
                                                                      
Income from operations                                   56,623       50,908
Interest income                                          1,502        2,294
Other income (expense), net                              (424)        1,887
                                                                      
Income before provision for income taxes                 57,701       55,089
Provision for income taxes                               17,310       17,628
                                                                      
Net income                                               $40,391      $37,461
                                                                      
Net income per share:
Basic                                                    $0.21        $0.19
Diluted                                                  $0.21        $0.19
                                                                      
Weighted average shares outstanding:
Basic                                                    191,114      192,947
Diluted                                                  192,969      195,937
                                                                      

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                                                           
ASSETS
                                                  May 31,         February 28,
                                                  2013            2013 (1)
                                                  (Unaudited)
Current assets:
Cash and cash equivalents                         $597,998        $487,084
Investments in debt and equity securities         255,638         392,381
Accounts receivable, net                          227,747         302,942
Deferred tax assets, net                          88,595          88,765
Prepaid expenses                                  90,141          94,421
Other current assets                              2,414           3,156
                                                                  
Total current assets                              1,262,533       1,368,749
                                                                  
Property and equipment, net                       158,876         141,586
Goodwill                                          690,530         690,911
Identifiable intangibles, net                     137,313         142,243
Investments in debt securities                    374,652         438,908
Other assets, net                                 31,029          31,263
                                                                  
Total assets                                      $2,654,933      $2,813,660
                                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses             $141,593        $154,202
Deferred revenue                                  800,791         830,486
Other current obligations                         1,041           1,024
                                                                  
Total current liabilities                         943,425         985,712
                                                                  
Long term deferred revenue                        259,103         259,466
Other long term obligations                       59,098          48,321
Stockholders' equity:
Common stock                                      23              23
Additional paid-in capital                        1,819,251       1,802,899
Retained earnings                                 582,271         541,880
Treasury stock, at cost                           (996,010)       (816,674)
Accumulated other comprehensive loss              (12,228)        (7,967)
                                                                  
Total stockholders' equity                        1,393,307       1,520,161
                                                                  
Total liabilities and stockholders' equity        $2,654,933      $2,813,660
                                                                  
                                                                  
(1) Derived from audited financial statements
                                                                  

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                                               
                                                                     
                                                       Three Months Ended
                                                       May 31,       May 31,
                                                       2013          2012
                                                                     
Cash flows from operating activities:
Net income                                             $40,391       $37,461
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization                          17,932        14,079
Share-based compensation expense                       23,131        22,206
Deferred income taxes                                  12,845        10,026
Excess tax benefits from share-based payment           (3,033)       (10,200)
arrangements
Net amortization of bond premium on                    2,051         1,671
available-for-sale debt securities
Other                                                  143           (2,370)
Changes in operating assets and liabilities net of
effects of acquisitions:
Accounts receivable                                    72,422        54,560
Prepaid expenses                                       3,251         (7,799)
Accounts payable and accrued expenses                  (12,609)      9,427
Deferred revenue                                       (16,900)      (5,122)
Other                                                  2,191         465
                                                                     
Net cash provided by operating activities              141,815       124,404
                                                                     
Cash flows from investing activities:
Purchase of available-for-sale debt securities         (129,643)     (322,741)
Proceeds from sales and maturities of                  325,850       227,685
available-for-sale debt securities
Purchase of other intangible assets                    (2,344)       (2,522)
Purchase of property and equipment                     (26,677)      (15,899)
Other                                                  192           330
                                                                     
Net cash provided by (used in) investing               167,378       (113,147)
activities
                                                                     
Cash flows from financing activities:
Excess tax benefits from share-based payment           3,033         10,200
arrangements
Proceeds from exercise of common stock options         453           3,890
Purchase of treasury stock                             (179,336)     (30,011)
Payments related to net settlement of employee         (10,983)      (18,832)
share-based compensation awards
Payments on other borrowings                           (305)         (264)
                                                                     
Net cash used in financing activities                  (187,138)     (35,017)
                                                                     
Effect of foreign currency exchange rates on cash      (11,141)      (16,841)
and cash equivalents
Net increase (decrease) in cash and cash               110,914       (40,601)
equivalents
Cash and cash equivalents at beginning of the          487,084       549,217
period
                                                                     
Cash and cash equivalents at end of period             $597,998      $508,616
                                                                     

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
                                                       May 31,        May 31,
                                                       2013           2012
                                                                      
Cost of revenue                                        $2,840         $2,165
Sales and marketing                                    9,375          7,362
Research and development                               6,881          6,812
General and administration                             4,035          5,867
Total share-based compensation expense                 $23,131        $22,206
                                                                      
                                                                      
Amortization of intangible assets expense included in Consolidated Statements
of Operations:
                                                                      
                                                       Three Months Ended
                                                       May 31,        May 31,
                                                       2013           2012
                                                                      
Cost of revenue                                        $2,672         $669
Sales and marketing                                    1,958          2,076
Research and development                               959            959
General and administration                             1,537          1,144
Total amortization of intangible assets expense        $7,126         $4,848
                                                                      
                                                                      
Facility exit costs included in Consolidated Statements of
Operations:
                                                                      
                                                       Three Months Ended
                                                       May 31,        May 31,
                                                       2013           2012
                                                                      
Facility exit costs                                    -              $3,142
                                                                      
                                                                      
                                                                      
                                                       Three Months Ended
                                                       May 31,        May 31,
                                                       2013           2012
                                                                      
GAAP net income                                        $40,391        $37,461
                                                                      
Provision for income taxes                             17,310         17,628
                                                                      
GAAP income before provision for income taxes          $57,701        $55,089
                                                                      
Add: Non-cash share-based compensation expense         23,131         22,206
Add: Amortization of intangible assets                 7,126          4,848
Add: Facility exit costs                               -              3,142
                                                                      
Non-GAAP adjusted income before provision for          $87,958        $85,285
income taxes
                                                                      
Provision for income taxes                             26,387         27,291
                                                                      
Non-GAAP adjusted net income (basic and diluted)       $61,571        $57,994
                                                                      
Non-GAAP adjusted net income per share:
Basic                                                  $0.32          $0.30
Diluted                                                $0.32          $0.30
                                                                      

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
                                      May 31,      May 31,
                                      2013         2012
                                                                
GAAP gross profit                     $307,202     $268,712
                                                                
Add: Non-cash share-based             2,840        2,165
compensation expense
Add: Amortization of intangible       2,672        669
assets
                                                                
Non-GAAP gross profit                 $312,714     $271,546
                                                                
Non-GAAP gross margin                 86%          86%
                                                                
                                                                
                                      Three Months Ended
                                      May 31,      May 31,
                                      2013         2012
                                                                
GAAP operating expenses               $250,579     $217,804
                                                                
Deduct: Non-cash share-based          (20,291)     (20,041)
compensation expense
Deduct: Amortization of               (4,454)      (4,179)
intangible assets
Deduct: Facility exit costs           -            (3,142)
                                                                
Non-GAAP adjusted operating           $225,834     $190,442
expenses
                                                                
                                                                
                                      Three Months Ended
                                      May 31,      May 31,
                                      2013         2012
                                                                
GAAP operating income                 $56,623      $50,908
                                                                
Add: Non-cash share-based             23,131       22,206
compensation expense
Add: Amortization of intangible       7,126        4,848
assets
Add: Facility exit costs              -            3,142
                                                                
Non-GAAP adjusted operating           $86,880      $81,104
income
                                                                
Non-GAAP adjusted operating           23.9%        25.8%
margin
                                                                
                                                                
                                      Three Months Ended
                                      May 31,      May 31,      Year-Over-Year
                                      2013         2012         Growth Rate
                                                                
GAAP subscription revenue             $315,817     $272,571     15.9%
Adjustment for currency impact        5,643        -
Non-GAAP subscription revenue on      $321,460     $272,571     17.9%
a constant currency basis
                                                                
GAAP training and services            $47,442      $42,160      12.5%
revenue
Adjustment for currency impact        534          -
Non-GAAP training and services
revenue on a constant currency        $47,976      $42,160      13.8%
basis
                                                                
GAAP total subscription, training     $363,259     $314,731     15.4%
and services revenue
Adjustment for currency impact        6,177        -
Non-GAAP total subscription,
training and services revenue on      $369,436     $314,731     17.4%
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
 
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