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December 19, 2014

Red Hat Reports Third Quarter Results

RALEIGH, N.C., Dec. 19 — Red Hat, Inc., the world’s leading provider of open source solutions, has announced financial results for its fiscal year 2015 third quarter ended November 30, 2014.

Total revenue for the quarter was $456 million, an increase of 15% in U.S. dollars from the year ago quarter, and 18% measured in constant currency. Constant currency references in this release are as detailed in the tables below. Subscription revenue for the quarter was $395 million, up 15% in U.S. dollars year-over-year, or 18% measured in constant currency.

“Our strong Q3 results marked the eleventh straight quarter of mid-to-high teens revenue growth as we continued to reinforce and expand our strategic relationship with our customers,” said Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Cloud computing and big data trends are driving increased demand for open source technologies. We believe our leadership position in the open source industry and broad portfolio of Open Hybrid Cloud technologies creates a strong position for Red Hat to capture market share in the cloud-enabled data center.”

GAAP operating income for the third quarter was $67 million, up 11% year-over-year. After adjusting for stock compensation, amortization expenses, transaction costs related to business combinations, and non-cash interest expense related to convertible debt as detailed in the tables below, non-GAAP operating income for the third quarter was $109 million, up 10% year-over-year. For the third quarter, GAAP operating margin was 14.7% and non-GAAP operating margin was 23.8%.

GAAP net income for the quarter was $48 million, or $0.26 per diluted share, compared with $52 million, or $0.27 per diluted share, in the year ago quarter. After adjusting for stock compensation, amortization expenses, transaction costs related to business combinations, and non-cash interest expense related to the convertible debt as detailed in the tables below, non-GAAP net income for the quarter was $79 million, or $0.42 per diluted share, as compared to $81 million, or $0.42 per diluted share, in the year ago quarter. The year ago third quarter included a $4 million discrete tax benefit and cumulative adjustment that lowered last year’s estimated annual effective tax rate and increased last year’s Q3 GAAP EPS and non-GAAP EPS results by approximately $0.04 per share and $0.06 per share, respectively.

Operating cash flow was $133 million for the third quarter, up 40% as compared to $95 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $1.30 billion, an increase of 16% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2014 was $1.65 billion. The company also completed a convertible debt offering of $805 million during the quarter. The company used a portion of the proceeds to enter into convertible note hedge transactions for net cost of approximately $68 million and an accelerated stock repurchase transaction for $375 million which resulted in the delivery to the company during Q3 of approximately 5.3 million shares of its common stock.

“Outstanding sales execution in the third quarter drove strong performance across the board. We excelled on virtually every key financial metric we track,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “We have had sequential quarterly revenue growth at Red Hat every quarter for 51 straight quarters. The sales performance this quarter with large deals was exceptional, setting new records in number of deals over $5 million in a quarter and deals over $10 million in a Q3. We believe the growing number and size of large deals reflects the increasingly strategic relationship that Red Hat is building with customers, in addition to customer demand for our broadening product portfolio.”

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