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 firstname.lastname@example.org or Investor Relations: Tom McCallum, 919-754-4630 email@example.com
Red Hat Reports First Quarter Results
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