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Red Hat Reports Second Quarter Results



  Red Hat Reports Second Quarter Results

             * Total revenue of $374 million, up 16% year-over-year
         * Subscription revenue of $327 million, up 17% year-over-year
  * GAAP EPS of $0.21, up 17% year-over-year; non-GAAP EPS of $0.35, up 25%
                                  year-over-year
  * Operating cash flow of $119 million, up 15% year-over-year

Business Wire

RALEIGH, N.C. -- September 23, 2013

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

Total revenue for the quarter was $374 million, an increase of 16% 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 $327 million, up 17% in U.S.
dollars year-over-year, or 18% measured in constant currency.

“We are a market leader for new innovations based on open source technologies
that are driving the transformation of the data center toward an open, hybrid
cloud infrastructure,” stated Jim Whitehurst, President and Chief Executive
Officer of Red Hat. “We recently added infrastructure-as-a-service, Red Hat
Enterprise Linux OpenStack Platform, to our portfolio of cloud offerings. The
combination of this powerful technology with our platform-as-a-service, open
software-defined storage and cloud management solutions create a compelling
road map for our customers in the move to cloud computing.”

GAAP operating income for the second quarter was $56 million, up 11%
year-over-year. After adjusting for stock compensation, amortization of
intangible assets and facility exit expenses, as detailed in the tables below,
non-GAAP operating income for the second quarter was $94 million, up 19%
year-over-year. For the second quarter, GAAP operating margin was 14.8% and
non-GAAP operating margin was 25.2%.

Net income for the quarter was $41 million, or $0.21 per diluted share,
compared with $35 million, or $0.18 per diluted share, in the year ago
quarter. After adjusting for stock compensation, amortization of intangible
assets and facility exit expenses, as detailed in the tables below, non-GAAP
net income for the quarter was $68 million, or $0.35 per diluted share, as
compared to $55 million, or $0.28 per diluted share, in the year ago quarter.

Operating cash flow was $119 million for the second quarter, as compared to
$104 million in the year ago quarter. At quarter end, the company’s total
deferred revenue balance was $1.06 billion, an increase of 12% on a
year-over-year basis. Total cash, cash equivalents and investments as of
August 31, 2013 was $1.29 billion after repurchasing approximately $20 million
of common stock, or approximately 438 thousand shares, in the second quarter.
Red Hat has repurchased approximately $199 million of common stock, or
approximately 4.1 million shares, during the first six months of fiscal 2014.

“We delivered mid-to-high teens growth across several financial metrics
including revenue, non-GAAP operating income and operating cash flow,” stated
Charlie Peters, Executive Vice President and Chief Financial Officer of Red
Hat. “These results were driven in particular by strong subscription revenue
growth, up 17% in U.S. dollars and 18% in constant currency. The billing
proxy, which we define as total revenue plus the change in deferred revenue
found on the Statement of Cash Flows, was $376 million, up 8% in U.S. dollars
and 9% in constant currency. This billings growth reflects modest IT spending
in Europe and the impact of large deal arrangements.”

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, 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          Six Months Ended
                             August        August        August      August
                             31,           31,           31,         31,
                             2013          2012          2013        2012
Revenue:
                                                                      
Subscriptions                $326,692      $278,800      $642,509    $551,371
Training and                 47,731        43,795        95,173      85,956
services
                                                                      
Total subscription,
training and                 374,423       322,595       737,682     637,327
services revenue
                                                                      
Cost of revenue:
                                                                      
Subscriptions                23,518        18,846        46,893      36,786
Training and                 32,062        29,012        64,744      57,092
services
                                                                      
Total cost of
subscription,                55,580        47,858        111,637     93,878
training and
services revenue
                                                                      
                                                                      
Total gross profit           318,843       274,737       626,045     543,449
                                                                      
Operating expense:
Sales and marketing          144,596       123,578       287,040     244,449
Research and                 78,299        63,366        152,100     123,246
development
General and                  38,203        37,813        72,537      71,724
administrative
Facility exit costs          2,171         -             2,171       3,142
                                                                      
Total operating              263,269       224,757       513,848     442,561
expense
                                                                      
Income from                  55,574        49,980        112,197     100,888
operations
Interest income              1,527         2,154         3,029       4,448
Other income                 1,196         (656)         772         1,232
(expense), net
                                                                      
                                                                      
Income before
provision for income         58,297        51,478        115,998     106,568
taxes
Provision for income         17,489        16,473        34,799      34,102
taxes
                                                                      
Net income                   $40,808       $35,005       $81,199     $72,466
                                                                      
Net income per
share:
Basic                        $0.22         $0.18         $0.43       $0.38
Diluted                      $0.21         $0.18         $0.42       $0.37
                                                                      
Weighted average
shares outstanding:
Basic                        189,437       193,064       190,276     193,005
Diluted                      191,432       195,795       192,230     195,929
                                                                      

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                                                             
ASSETS
 
                                              August 31,      February 28,
                                              2013            2013 (1)
                                              (Unaudited)
Current assets:
Cash and cash equivalents                     $596,794        $487,084
Investments in debt and equity securities     266,841         392,381
Accounts receivable, net                      232,884         302,942
Deferred tax assets, net                      88,325          88,765
Prepaid expenses                              93,987          94,421
Other current assets                          2,829           3,156
                                                               
Total current assets                          1,281,660       1,368,749
                                                               
Property and equipment, net                   167,343         141,586
Goodwill                                      690,342         690,911
Identifiable intangibles, net                 142,247         142,243
Investments in debt securities                427,036         438,908
Other assets, net                             30,953          31,263
                                                               
Total assets                                  $2,739,581      $2,813,660
                                                               
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses         $178,904        $154,202
Deferred revenue                              796,044         830,486
Other current obligations                     993             1,024
                                                               
Total current liabilities                     975,941         985,712
                                                               
Long term deferred revenue                    263,553         259,466
Other long term obligations                   58,483          48,321
Stockholders' equity:
Common stock                                  23              23
Additional paid-in capital                    1,846,825       1,802,899
Retained earnings                             623,079         541,880
Treasury stock, at cost                       (1,016,401)     (816,674)
Accumulated other comprehensive loss          (11,922)        (7,967)
                                                               
Total stockholders' equity                    1,441,604       1,520,161
                                                               
Total liabilities and stockholders' equity    $2,739,581      $2,813,660
                                                               
                                                               
(1) Derived from audited financial statements
                                                               

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                                                    
                                                                      
                             Three Months Ended          Six Months Ended
                             August        August        August      August
                             31,           31,           31,         31,
                             2013          2012          2013        2012
                                                                      
Cash flows from
operating
activities:
Net income                   $40,808       $35,005       $81,199     $72,466
Adjustments to
reconcile net income
to net cash provided
by
operating
activities:
Depreciation and             18,439        14,568        36,371      28,647
amortization
Share-based                  29,874        23,859        53,006      46,065
compensation expense
Deferred income              3,818         13,036        16,663      23,063
taxes
Excess tax benefits
from share-based             (2,610)       (9,600)       (5,643)     (19,800)
payment arrangements
Net amortization of
bond premium on              2,285         1,748         4,336       3,420
available-for-sale
debt securities
Other                        (96)          529           47          (1,840)
Changes in operating
assets and
liabilities net of
effects of
acquisitions:
Accounts receivable          (6,341)       (18,735)      66,081      35,825
Prepaid expenses             (5,645)       833           (2,394)     (6,966)
Accounts payable and         38,902        13,502        26,293      22,928
accrued expenses
Deferred revenue             1,880         26,430        (15,020)    21,308
Other                        (2,385)       2,678         (195)       3,141
                                                                      
Net cash provided by         118,929       103,853       260,744     228,257
operating activities
                                                                      
Cash flows from
investing
activities:
Purchase of
available-for-sale           (217,433)     (185,028)     (347,076)   (507,769)
debt securities
Proceeds from sales
and maturities of            153,917       190,094       479,767     417,779
available-for-sale
debt securities
Acquisition of
business, net of             -             (10,051)      -           (10,051)
cash acquired
Purchase of other            (10,177)      (24,341)      (12,521)    (26,863)
intangible assets
Purchase of property         (21,829)      (20,344)      (48,506)    (36,243)
and equipment
Other                        (2,126)       -             (1,934)     330
                                                                      
Net cash provided by
(used in) investing          (97,648)      (49,670)      69,730      (162,817)
activities
                                                                      
Cash flows from
financing
activities:
Excess tax benefits
from share-based             2,610         9,600         5,643       19,800
payment arrangements
Proceeds from
exercise of common           635           2,626         1,088       6,516
stock options
Purchase of treasury         (20,009)      (2,871)       (199,345)   (32,882)
stock
Payments related to
net settlement of            (3,833)       (3,856)       (14,815)    (22,688)
employee share-based
compensation awards
Payments on other            (312)         (213)         (617)       (477)
borrowings
                                                                      
Net cash provided by
(used in) financing          (20,909)      5,286         (208,046)   (29,731)
activities
                                                                      
Effect of foreign
currency exchange            (1,576)       3,491         (12,718)    (13,350)
rates on cash and
cash equivalents
Net increase
(decrease) in cash           (1,204)       62,960        109,710     22,359
and cash equivalents
Cash and cash
equivalents at               597,998       508,616       487,084     549,217
beginning of the
period
                                                                      
Cash and cash
equivalents at end           $596,794      $571,576      $596,794    $571,576
of period
                                                                      

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              Six Months Ended
                       August 31,       August 31,     August 31,   August 31,
                       2013             2012           2013         2012
                                                                     
Cost of revenue        $3,100           $2,167         $5,939       $4,333
Sales and marketing    10,365           7,726          19,741       15,087
Research and           9,058            7,294          15,939       14,106
development
General and            7,351            6,672          11,387       12,539
administration
Total share-based      $29,874          $23,859        $53,006      $46,065
compensation expense
                                                                     
                                                                     
Amortization of intangible assets expense included
in Consolidated Statements of Operations:
                                                                     
                       Three Months Ended              Six Months Ended
                       August 31,       August 31,     August 31,   August 31,
                       2013             2012           2013         2012
                                                                     
Cost of revenue        $2,496           $1,149         $5,169       $1,819
Sales and marketing    1,958            2,120          3,916        4,196
Research and           959              959            1,918        1,918
development
General and            1,203            1,181          2,740        2,324
administration
Total amortization of
intangible assets      $6,616           $5,409         $13,743      $10,257
expense
                                                                     
                                                                     
Facility exit costs included in
Consolidated Statements of
Operations:
                                                                     
                       Three Months Ended              Six Months Ended
                       August 31,       August 31,     August 31,   August 31,
                       2013             2012           2013         2012
                                                                     
Facility exit costs    $2,171           -              $2,171       $3,142
                                                                     
                                                                     
                                                                     
                       Three Months Ended              Six Months Ended
                       August 31,       August 31,     August 31,   August 31,
                       2013             2012           2013         2012
                                                                     
GAAP net income        $40,808          $35,005        $81,199      $72,466
                                                                     
Provision for income   17,489           16,473         34,799       34,102
taxes
                                                                     
GAAP income before
provision for income   $58,297          $51,478        $115,998     $106,568
taxes
                                                                     
Add: Non-cash
share-based            29,874           23,859         53,006       46,065
compensation expense
Add: Amortization of   6,616            5,409          13,743       10,257
intangible assets
Add: Facility exit     2,171            -              2,171        3,142
costs
                                                                     
Non-GAAP adjusted
income before          $96,958          $80,746        $184,918     $166,032
provision for income
taxes
                                                                     
Provision for income   29,088           25,839         55,475       53,130
taxes
                                                                     
Non-GAAP adjusted net
income (basic and      $67,870          $54,907        $129,443     $112,902
diluted)
                                                                     
Non-GAAP adjusted net
income per share:
Basic                  $0.36            $0.28          $0.68        $0.58
Diluted                $0.35            $0.28          $0.67        $0.58
                                                                     

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          Six Months Ended
                      August         August       August 31,           August
                      31,            31,                               31,
                      2013           2012         2013                 2012
                                                                        
GAAP gross            $318,843       $274,737     $626,045             $543,449
profit
                                                                        
Add: Non-cash
share-based           3,100          2,167        5,939                4,333
compensation
expense
Add:
Amortization          2,496          1,149        5,169                1,819
of intangible
assets
                                                                        
Non-GAAP              $324,439       $278,053     $637,153             $549,601
gross profit
                                                                        
Non-GAAP              87%            86%          86%                  86%
gross margin
                                                                        
                                                                        
                      Three Months Ended          Six Months Ended
                      August         August       August 31,           August
                      31,            31,                               31,
                      2013           2012         2013                 2012
                                                                        
GAAP
operating             $263,269       $224,757     $513,848             $442,561
expenses
                                                                        
Deduct:
Non-cash
share-based           (26,774)       (21,692)     (47,067)             (41,732)
compensation
expense
Deduct:
Amortization          (4,120)        (4,260)      (8,574)              (8,438)
of intangible
assets
Deduct:
Facility exit         (2,171)        -            (2,171)              (3,142)
costs
                                                                        
Non-GAAP
adjusted              $230,204       $198,805     $456,036             $389,249
operating
expenses
                                                                        
                                                                        
                      Three Months Ended          Six Months Ended
                      August         August       August 31,           August
                      31,            31,                               31,
                      2013           2012         2013                 2012
                                                                        
GAAP
operating             $55,574        $49,980      $112,197             $100,888
income
                                                                        
Add: Non-cash
share-based           29,874         23,859       53,006               46,065
compensation
expense
Add:
Amortization          6,616          5,409        13,743               10,257
of intangible
assets
Add: Facility         2,171          -            2,171                3,142
exit costs
                                                                        
Non-GAAP
adjusted              $94,235        $79,248      $181,117             $160,352
operating
income
                                                                        
Non-GAAP
adjusted              25.2%          24.6%        24.6%                25.2%
operating
margin
                                                                        
                                                                        
                                                                        
                                                                        
                      Three Months Ended           
                      August         August       Year-Over-Year
                      31,            31,
                      2013           2012         Growth Rate
                                                                        
GAAP
subscription          $326,692       $278,800     17.2%
revenue
Adjustment
for currency          2,880          -
impact
Non-GAAP
subscription
revenue on a          $329,572       $278,800     18.2%
constant
currency
basis
                                                                        
GAAP training
and services          $47,731        $43,795      9.0%
revenue
Adjustment
for currency          427            -
impact
Non-GAAP
training and
services
revenue on a          $48,158        $43,795      10.0%
constant
currency
basis
                                                                        
GAAP total
subscription,
training and          $374,423       $322,595     16.1%
services
revenue
Adjustment
for currency          3,307          -
impact
Non-GAAP
total
subscription,
training and
services              $377,730       $322,595     17.1%
revenue on a
constant
currency
basis
                                                                        
                                                                        
                      Six Months Ended             
                      August         August       Year-Over-Year
                      31,            31,
                      2013           2012         Growth Rate
                                                                        
GAAP
subscription          $642,509       $551,371     16.5%
revenue
Adjustment
for currency          8,600          -
impact
Non-GAAP
subscription
revenue on a          $651,109       $551,371     18.1%
constant
currency
basis
                                                                        
GAAP training
and services          $95,173        $85,956      10.7%
revenue
Adjustment
for currency          981            -
impact
Non-GAAP
training and
services
revenue on a          $96,154        $85,956      11.9%
constant
currency
basis
                                                                        
GAAP total
subscription,
training and          $737,682       $637,327     15.7%
services
revenue
Adjustment
for currency          9,581          -
impact
Non-GAAP
total
subscription,
training and
services              $747,263       $637,327     17.2%
revenue on a
constant
currency
basis

Contact:

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