Red Hat Reports Third Quarter Results

  Red Hat Reports Third Quarter Results

  *Total revenue of $397 million, up 15% year-over-year
  *Subscription revenue of $343 million, up 17% year-over-year
  *GAAP operating income of $61 million, up 22% year-over-year; non-GAAP
    operating income of $98 million, up 19% year-over-year

Business Wire

RALEIGH, N.C. -- December 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 third
quarter ended November 30, 2013.

Total revenue for the quarter was $397 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 $343 million, up 17% in U.S.
dollars year-over-year, or 18% measured in constant currency.

“Strong demand in Q3 for our core Red Hat Enterprise Linux and JBoss
Middleware technologies led to results that exceeded guidance across several
key financial metrics,” stated Jim Whitehurst, President and Chief Executive
Officer of Red Hat. “Red Hat’s technologies address the high growth
opportunities in the data center to modernize and move away from legacy
proprietary software in order to deploy open hybrid cloud technologies that
drive IT velocity, efficiency and scalability.”

GAAP operating income for the third quarter was $61 million, up 22%
year-over-year. After adjusting for stock compensation expense and
amortization of intangible assets, as detailed in the tables below, non-GAAP
operating income for the third quarter was $98 million, up 19% year-over-year.
For the third quarter, GAAP operating margin was 15.3% and non-GAAP operating
margin was 24.8%.

Net income for the quarter was $52 million, or $0.27 per diluted share,
compared with $35 million, or $0.18 per diluted share, in the year ago
quarter. After adjusting for stock compensation expense and amortization of
intangible assets, as detailed in the tables below, non-GAAP net income for
the quarter was $81 million, or $0.42 per diluted share, as compared to $57
million, or $0.29 per diluted share, in the year ago quarter. As a result of a
discrete tax benefit and cumulative adjustments that lowered the estimated
annual effective tax rate, GAAP EPS and non-GAAP EPS results benefited by
approximately $0.04 per share and $0.06 per share, respectively.

Operating cash flow was $95 million for the third quarter, as compared to $100
million in the year ago quarter. At quarter end, the company’s total deferred
revenue balance was $1.12 billion, an increase of 14% on a year-over-year
basis. Total cash, cash equivalents and investments as of November 30, 2013
was $1.33 billion after repurchasing approximately $40 million of common
stock, or approximately 920 thousand shares, in the third quarter. Red Hat has
repurchased approximately $239 million of common stock, or approximately 5.0
million shares, during the first nine months of fiscal 2014.

“We experienced an acceleration in our billings proxy growth in Q3, both
year-over-year and sequentially, due in part to the strengthening of our
European and U.S. federal government businesses,” stated Charlie Peters,
Executive Vice President and Chief Financial Officer of Red Hat. “The billings
proxy, which we define as total revenue plus the change in deferred revenue
found on the Statement of Cash Flows, was $453 million, up 19% in U.S. dollars
and 21% in constant currency compared to last year. Red Hat associates
executed well.”

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 the
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 at 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 Torvalds and OpenStack is a registered trademark of
                               OpenStack, LLC.

The OpenStack® Word Mark and OpenStack Logo are either registered trademarks /
 service marks or trademarks / service marks of the OpenStack Foundation, in
    the United States and other countries and are used with the OpenStack
Foundation's permission. We are not affiliated with, endorsed or sponsored by
             the OpenStack Foundation or the OpenStack community.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
                                                         
                                                                     
                           Three Months Ended         Nine Months Ended
                           November     November      November       November
                           30,          30,           30,            30,
                           2013         2012          2013           2012
Revenue:
                                                                     
  Subscriptions            $342,770     $294,186      $985,279       $845,557
  Training and services    53,766       49,420        148,939        135,375
                                                                     
                                                                     
    Total subscription,
    training and           396,536      343,606       1,134,218      980,932
    services revenue
                                                                     
Cost of revenue:
                                                                     
  Subscriptions            24,544       21,153        71,437         57,939
  Training and services    35,883       31,965        100,627        89,056
                                                                     
                                                                     
    Total cost of
    subscription,          60,427       53,118        172,064        146,995
    training and
    services revenue
                                                                     
                                                                     
  Total gross profit       336,109      290,488       962,154        833,937
                                                                     
Operating expense:
  Sales and marketing      153,528      133,792       440,568        378,240
  Research and             82,519       68,655        234,619        191,901
  development
  General and              39,270       38,122        111,807        109,847
  administrative
  Facility exit costs      -            -             2,171          3,142
                                                                     
    Total operating        275,317      240,569       789,165        683,130
    expense
                                                                     
Income from operations     60,792       49,919        172,989        150,807
  Interest income          1,579        1,936         4,608          6,384
  Other income             (440)        (730)         332            502
  (expense), net
                                                                     
                                                                     
Income before provision    61,931       51,125        177,929        157,693
for income taxes
Provision for income       9,906        16,360        44,705         50,462
taxes
                                                                     
Net income                 $52,025      $34,765       $133,224       $107,231
                                                                     
Net income per share:
  Basic                    $0.27        $0.18         $0.70          $0.56
  Diluted                  $0.27        $0.18         $0.69          $0.55
                                                                     
Weighted average shares
outstanding:
  Basic                    189,514      193,374       190,024        193,127
  Diluted                  191,365      195,666       192,049        195,898

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                                                     
ASSETS
                                              November 30,   February 28,
                                              2013           2013 (1)
                                              (Unaudited)
Current assets:
   Cash and cash equivalents                  $642,111       $487,084
   Investments in debt and equity securities  324,424        392,381
   Accounts receivable, net                   309,753        302,942
   Deferred tax assets, net                   93,711         88,765
   Prepaid expenses                           96,142         94,421
   Other current assets                       2,459          3,156
                                                             
Total current assets                          1,468,600      1,368,749
                                                             
   Property and equipment, net                168,604        141,586
   Goodwill                                   687,490        690,911
   Identifiable intangibles, net              136,073        142,243
   Investments in debt securities             360,114        438,908
   Other assets, net                          30,487         31,263
                                                             
Total assets                                  $2,851,368     $2,813,660
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses      $190,868       $154,202
   Deferred revenue                           833,671        830,486
   Other current obligations                  1,007          1,024
                                                             
Total current liabilities                     1,025,546      985,712
                                                             
   Long term deferred revenue                 289,622        259,466
   Other long term obligations                64,997         48,321
Stockholders' equity:
   Common stock                               23             23
   Additional paid-in capital                 1,857,738      1,802,899
   Retained earnings                          675,104        541,880
   Treasury stock, at cost                    (1,056,419)    (816,674)
   Accumulated other comprehensive loss       (5,243)        (7,967)
                                                             
Total stockholders' equity                    1,471,203      1,520,161
                                                             
Total liabilities and stockholders' equity    $2,851,368     $2,813,660
                                                             
                                                             
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                                            
                                                                    
                             Three Months Ended        Nine Months Ended
                             November     November     November     November
                             30,          30,          30,          30,
                             2013         2012         2013         2012
                                                                    
Cash flows from operating
activities:
Net income                   $52,025      $34,765      $133,224     $107,231
Adjustments to reconcile net
income to net cash provided
by
operating activities:
Depreciation and             18,955       16,126       55,326       44,773
amortization
Share-based compensation     30,190       26,678       83,196       72,743
expense
Deferred income taxes        2,016        6,686        18,679       29,749
Excess tax benefits from
share-based payment          (3,428)      (8,100)      (9,071)      (27,900)
arrangements
Net amortization of bond
premium on                   2,301        1,675        6,637        5,094
available-for-sale debt
securities
Other                        438          (552)        485          (2,393)
Changes in operating assets
and liabilities net of
effects of acquisitions:
Accounts receivable          (75,330)     (35,291)     (9,249)      534
Prepaid expenses             (1,109)      2,652        (3,503)      (4,314)
Accounts payable and accrued 12,272       19,879       38,565       42,809
expenses
Deferred revenue             56,019       35,207       40,999       56,515
Other                        805          431          610          3,572
                                                                    
Net cash provided by         95,154       100,156      355,898      328,413
operating activities
                                                                    
Cash flows from investing
activities:
Purchase of
available-for-sale debt      (101,636)    (123,318)    (448,712)    (631,087)
securities
Proceeds from sales and
maturities of                118,084      169,743      597,851      587,522
available-for-sale debt
securities
Acquisition of business, net -            (21,188)     -            (31,239)
of cash acquired
Purchase of other intangible (682)        (5,577)      (13,203)     (32,440)
assets
Purchase of property and     (13,327)     (28,309)     (61,833)     (64,552)
equipment
Other                        (150)        (66)         (2,084)      264
                                                                    
Net cash provided by (used   2,289        (8,715)      72,019       (171,532)
in) investing activities
                                                                    
Cash flows from financing
activities:
Excess tax benefits from
share-based payment          3,428        8,100        9,071        27,900
arrangements
Proceeds from exercise of    223          4,294        1,311        10,810
common stock options
Purchase of treasury stock   (40,018)     (52,018)     (239,363)    (84,900)
Payments related to net
settlement of employee       (18,307)     (22,924)     (33,122)     (45,612)
share-based compensation
awards
Payments on other borrowings (362)        (205)        (979)        (682)
                                                                    
Net cash used in financing   (55,036)     (62,753)     (263,082)    (92,484)
activities
                                                                    
Effect of foreign currency
exchange rates on cash and   2,910        5,647        (9,808)      (7,703)
cash equivalents
Net increase in cash and     45,317       34,335       155,027      56,694
cash equivalents
Cash and cash equivalents at 596,794      571,576      487,084      549,217
beginning of the period
                                                                    
Cash and cash equivalents at $642,111     $605,911     $642,111     $605,911
end 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         Nine Months Ended
                              November 30,    November   November    November
                                              30,        30,         30,
                              2013            2012       2013        2012
                                                                     
Cost of revenue               $2,922          $2,444     $8,861      $6,777
Sales and marketing           10,268          8,875      30,009      23,962
Research and development      9,161           7,935      25,100      22,040
General and administration    7,839           7,424      19,226      19,964
Total share-based             $30,190         $26,678    $83,196     $72,743
compensation expense
                                                                     
                                                                     
Amortization of intangible assets expense included in
Consolidated Statements of Operations:
                                                                     
                              Three Months Ended         Nine Months Ended
                              November 30,    November   November    November
                                              30,        30,         30,
                              2013            2012       2013        2012
                                                                     
Cost of revenue               $2,504          $1,433     $7,672      $3,252
Sales and marketing           2,479           2,076      6,395       6,272
Research and development      959             959        2,877       2,877
General and administration    1,288           1,476      4,028       3,800
Total amortization of         $7,230          $5,944     $20,972     $16,201
intangible assets expense
                                                                     
                                                                     
Facility exit costs included
in Consolidated Statements of
Operations:
                                                                     
                              Three Months Ended         Nine Months Ended
                              November 30,    November   November    November
                                              30,        30,         30,
                              2013            2012       2013        2012
                                                                     
Facility exit costs           -               -          $2,171      $3,142
                                                                     
                                                                     
                                                                     
                              Three Months Ended         Nine Months Ended
                              November 30,    November   November    November
                                              30,        30,         30,
                              2013            2012       2013        2012
                                                                     
GAAP net income               $52,025         $34,765    $133,224    $107,231
                                                                     
Provision for income taxes    9,906           16,360     44,705      50,462
                                                                     
GAAP income before provision  $61,931         $51,125    $177,929    $157,693
for income taxes
                                                                     
Add: Non-cash share-based     30,190          26,678     83,196      72,743
compensation expense
Add: Amortization of          7,230           5,944      20,972      16,201
intangible assets
Add: Facility exit costs      -               -          2,171       3,142
                                                                     
Non-GAAP adjusted income
before provision for income   $99,351         $83,747    $284,268    $249,779
taxes
                                                                     
Provision for income taxes    18,474          26,799     73,949      79,929
(1)
                                                                     
Non-GAAP adjusted net income  $80,877         $56,948    $210,319    $169,850
(basic and diluted)
                                                                     
Non-GAAP adjusted net income
per share:
Basic                         $0.43           $0.29      $1.11       $0.88
Diluted                       $0.42           $0.29      $1.10       $0.87
                                                                     
                                                                     
(1) Provision for income
taxes:
Non-GAAP adjusted net income  $99,351         $83,747    $284,268    $249,779
before income tax provision
Estimated effective tax
rates, excluding discrete tax 22.8%           32.0%      27.5%       32.0%
items
Non-GAAP provision for income
taxes before discrete tax     $22,699         $26,799    $78,174     $79,929
benefit
Discrete tax benefit          4,225           -          4,225       -
Provision for income taxes on $18,474         $26,799    $73,949     $79,929
Non-GAAP 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         Nine Months Ended
                         November 30,   November    November 30,     November
                                        30,                          30,
                         2013           2012        2013             2012
                                                                     
GAAP gross profit        $336,109       $290,488    $962,154         $833,937
                                                                     
Add: Non-cash
share-based compensation 2,922          2,444       8,861            6,777
expense
Add: Amortization of     2,504          1,433       7,672            3,252
intangible assets
                                                                     
Non-GAAP gross profit    $341,535       $294,365    $978,687         $843,966
                                                                     
Non-GAAP gross margin    86%            86%         86%              86%
                                                                     
                                                                     
                         Three Months Ended         Nine Months Ended
                         November 30,   November    November 30,     November
                                        30,                          30,
                         2013           2012        2013             2012
                                                                     
GAAP operating expenses  $275,317       $240,569    $789,165         $683,130
                                                                     
Deduct: Non-cash
share-based compensation (27,268)       (24,234)    (74,335)         (65,966)
expense
Deduct: Amortization of  (4,726)        (4,511)     (13,300)         (12,949)
intangible assets
Deduct: Facility exit    -              -           (2,171)          (3,142)
costs
                                                                     
Non-GAAP adjusted        $243,323       $211,824    $699,359         $601,073
operating expenses
                                                                     
                                                                     
                         Three Months Ended         Nine Months Ended
                         November 30,   November    November 30,     November
                                        30,                          30,
                         2013           2012        2013             2012
                                                                     
GAAP operating income    $60,792        $49,919     $172,989         $150,807
                                                                     
Add: Non-cash
share-based compensation 30,190         26,678      83,196           72,743
expense
Add: Amortization of     7,230          5,944       20,972           16,201
intangible assets
Add: Facility exit costs -              -           2,171            3,142
                                                                     
Non-GAAP adjusted        $98,212        $82,541     $279,328         $242,893
operating income
                                                                     
Non-GAAP adjusted        24.8%          24.0%       24.6%            24.8%
operating margin
                                                                     
                                                                     
                                                                     
Reconciliation of constant currency revenue growth rates
                                                                     
                         Three Months Ended
                         November 30,   November    Year-Over-Year
                                        30,
                         2013           2012        Growth Rate
                                                                     
GAAP subscription        $342,770       $294,186    16.5%
revenue
Adjustment for currency  4,481          -
impact
Non-GAAP subscription
revenue on a constant    $347,251       $294,186    18.0%
currency basis
                                                                     
GAAP training and        $53,766        $49,420     8.8%
services revenue
Adjustment for currency  757            -
impact
Non-GAAP training and
services revenue on a    $54,523        $49,420     10.3%
constant currency basis
                                                                     
GAAP total subscription,
training and services    $396,536       $343,606    15.4%
revenue
Adjustment for currency  5,238          -
impact
Non-GAAP total
subscription, training
and services revenue on  $401,774       $343,606    16.9%
a constant currency
basis
                                                                     
                                                                     
                         Nine Months Ended
                         November 30,   November    Year-Over-Year
                                        30,
                         2013           2012        Growth Rate
                                                                     
GAAP subscription        $985,279       $845,557    16.5%
revenue
Adjustment for currency  13,011         -
impact
Non-GAAP subscription
revenue on a constant    $998,290       $845,557    18.1%
currency basis
                                                                     
GAAP training and        $148,939       $135,375    10.0%
services revenue
Adjustment for currency  1,750          -
impact
Non-GAAP training and
services revenue on a    $150,689       $135,375    11.3%
constant currency basis
                                                                     
GAAP total subscription,
training and services    $1,134,218     $980,932    15.6%
revenue
Adjustment for currency  14,761         -
impact
Non-GAAP total
subscription, training
and services revenue on  $1,148,979     $980,932    17.1%
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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