Red Hat Reports Third Quarter Results

• Third quarter revenue of $290 million, up 23% year-over-year
• Third quarter GAAP operating income of $54 million, up 41% year-over-year; non-GAAP operating income of $79 million, up 36% year-over-year
• Third quarter GAAP EPS of $0.19, up 46% year-over-year; non-GAAP EPS of $0.28, up 40% year-over-year
• Third quarter operating cash flow of $97 million, up 36% year-over-year

RALEIGH, N.C.--(BUSINESS WIRE)--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for its fiscal year 2012 third quarter ended November 30, 2011.

Total revenue for the quarter was $290.0 million, an increase of 23% from the year ago quarter. Subscription revenue for the quarter was $246.5 million, up 24% year-over-year.

“Red Hat continues to benefit from enterprise customers that are seeking to leverage their IT infrastructure to drive significant productivity gains and agility across their organizations. The combination of strong sales execution, market demand and market share gains contributed to organic billings and revenue growth of 23% for the quarter,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “We also recently completed the acquisition and integration of Gluster, including the launch of our first Red Hat branded storage product for unstructured data. We will continue to expand our storage solutions in cloud computing and big data storage, and believe that Red Hat is well positioned to deliver disruptive solutions in the large and growing storage market.”

GAAP operating income for the third quarter was $53.6 million, or 18.5% operating margin. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP operating income for the third quarter was $78.8 million, up 36% year-over-year. Non-GAAP operating margin was 27.2%, up 260 basis points from the year ago quarter.

Net income for the quarter was $38.2 million, or $0.19 per diluted share, compared with $26.0 million, or $0.13 per diluted share, in the year ago quarter. After adjusting for stock compensation and amortization expenses, as detailed in the tables below, non-GAAP net income for the quarter was $55.7 million, or $0.28 per diluted share, as compared to $39.1 million, or $0.20 per diluted share, in the year ago quarter.

Operating cash flow was $96.6 million for the third quarter, as compared to $70.8 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $819.6 million, an increase of 20% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2011 was $1.2 billion.

“We continued to deliver consistent performance across our business which resulted in strong growth in our key financial metrics. At the same time, we continued to invest in strategic growth initiatives.” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “When compared to the first three quarters of last fiscal year, our year-to-date revenue, non-GAAP operating income and operating cash flow are up 26%, 35% and 35%, respectively.”

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, the world's leading provider of open source solutions and an S&P 500 company, is headquartered in Raleigh, NC with more than 70 offices spanning the globe. Red Hat provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, management, storage and service-oriented architecture (SOA) solutions, including Red Hat Enterprise Virtualization and JBoss Enterprise Middleware. Red Hat also offers support, training and consulting services to its customers worldwide. 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; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 the earthquakes and floods, including events in Japan. 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 the press release.

Red Hat Inc., Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
				Three Months Ended					Nine Months Ended
				November 30,			November 30,		November 30,			November 30,
				2011			2010		2011			2010
Revenue:
		Subscriptions		$	246,538		$	198,842	$	710,408		$	564,101
		Training and services			43,488			36,734		125,684			100,380
			Total subscription, training and services revenue		290,026			235,576		836,092			664,481
Cost of revenue:
		Subscriptions			17,041			13,336		48,876			38,256
		Training and services			28,148			26,408		85,399			70,427
			Total cost of subscription, training and services revenue		45,189			39,744		134,275			108,683
	Total gross profit				244,837			195,832		701,817			555,798
Operating expense:
	Sales and marketing				107,561			85,138		304,617			239,136
	Research and development				53,739			43,083		153,515			126,102
	General and administrative				29,965			29,655		92,277			84,294
		Total operating expense			191,265			157,876		550,409			449,532
Income from operations					53,572			37,956		151,408			106,266
	Interest income				2,075			1,608		6,138			5,046
	Other income (loss), net				(227	)		462		(167	)		2,140
Income before provision for income taxes					55,420			40,026		157,379			113,452
Provision for income taxes					17,180			14,009		46,722			39,708
Net income				$	38,240		$	26,017	$	110,657		$	73,744
Net income-diluted				$	38,240		$	26,017	$	110,657		$	73,744
Net income per share:
	Basic			$	0.20		$	0.14	$	0.57		$	0.39
	Diluted			$	0.19		$	0.13	$	0.56		$	0.38
Weighted average shares outstanding:
	Basic				193,393			191,296		193,162			189,410
	Diluted				196,468			196,908		196,493			195,723

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
					November 30,			February 28,
					2011			2011 (1)
					(Unaudited)
Current assets:
	Cash and cash equivalents				$	526,665		$	642,630
	Investments in debt and equity securities					281,647			217,970
	Accounts receivable, net					206,449			184,741
	Deferred tax assets, net					69,460			75,720
	Prepaid expenses					67,422			62,364
	Other current assets					2,175			1,133
		Total current assets				1,153,818			1,184,558
	Property and equipment, net					83,925			75,558
	Goodwill					591,061			463,673
	Identifiable intangibles, net					104,566			109,932
	Investments in debt securities					408,455			331,791
	Other assets, net					38,449			33,810
		Total assets			$	2,380,274		$	2,199,322
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable				$	22,405		$	16,285
	Accrued expenses					101,107			90,229
	Deferred revenue					609,746			572,637
	Other current obligations					632			650
		Total current liabilities				733,890			679,801
	Deferred lease credits					5,058			5,215
	Long term deferred revenue					209,869			199,617
	Other long term obligations					24,060			23,990
Stockholders' equity:
	Common stock					23			22
	Additional paid-in capital					1,679,955			1,610,238
	Retained earnings					355,707			245,050
	Treasury stock, at cost					(619,744	)		(562,792	)
	Accumulated other comprehensive loss					(8,544	)		(1,819	)
			Total stockholders' equity			1,407,397			1,290,699
			Total liabilities and stockholders' equity		$	2,380,274		$	2,199,322
				(1) derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
		2011			2010			2011			2010
Cash flows from operating activities:
Net income		$	38,240		$	26,017		$	110,657		$	73,744
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		12,392			11,829			38,278			35,240
	Share-based compensation expense		20,770			15,340			55,710			44,189
	Deferred income taxes		17,015			7,911			36,225			29,697
	Excess tax benefits from share-based payment arrangements		(7,626	)		(10,800	)		(24,298	)		(31,999	)
	Gain on sale of available-for-sale equity securities		-			(1,726	)		(1,307	)		(2,843	)
	Other		(233	)		673			757			789
Changes in operating assets and liabilities:
	Accounts receivable		(35,014	)		(23,762	)		(23,429	)		(11,030	)
	Prepaid expenses		(3,096	)		(4,613	)		(6,324	)		(9,357	)
	Accounts payable		6,585			5,544			6,209			2,662
	Accrued expenses		15,621			16,343			15,386			24,595
	Deferred revenue		32,046			26,803			56,167			39,184
	Other		(144	)		1,261			(159	)		877
	Net cash provided by operating activities		96,556			70,820			263,872			195,748
Cash flows from investing activities:
	Purchase of available-for-sale debt securities		(329,730	)		(314,729	)		(731,016	)		(535,093	)
	Proceeds from sales and maturities of available-for-sale debt securities		196,991			191,259			578,267			605,388
	Proceeds from sales of available-for-sale equity securities		-			1,843			1,346			3,000
	Acquisition of business, net of cash acquired		(135,210	)		(31,381	)		(135,210	)		(31,381	)
	Purchase of strategic equity investments		(1,622	)		-			(2,622	)		-
	Purchase of developed technologies and other intangible assets		(643	)		(9,481	)		(4,245	)		(12,426	)
	Purchase of property and equipment		(11,115	)		(10,079	)		(31,294	)		(25,171	)
	Net cash provided by (used in) investing activities		(281,329	)		(172,568	)		(324,774	)		4,317
Cash flows from financing activities:
	Excess tax benefits from share-based payment arrangements		7,626			10,800			24,298			31,999
	Proceeds from exercise of common stock options		7,139			24,654			15,552			80,353
	Purchase of treasury stock		-			-			(56,952	)		(79,355	)
	Payments related to net settlement of employee share-based compensation awards		(20,118	)		(14,899	)		(32,103	)		(23,089	)
	Proceeds from other borrowings		66			335			66			335
	Payments on other borrowings		(136	)		-			(825	)		(877	)
	Net cash provided by (used in) financing activities		(5,423	)		20,890			(49,964	)		9,366
Effect of foreign currency exchange rates on cash and cash equivalents			(20,597	)		6,545			(5,099	)		(2,635	)
Net increase (decrease) in cash and cash equivalents			(210,793	)		(74,313	)		(115,965	)		206,796
Cash and cash equivalents at beginning of the period			737,458			669,227			642,630			388,118
Cash and cash equivalents at end of period		$	526,665		$	594,914		$	526,665		$	594,914

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 30,			November 30,			November 30,
		2011			2010			2011			2010
	Cost of revenue	$	2,245		$	1,607		$	5,877		$	4,168
	Sales and marketing		7,157			4,922			18,829			13,469
	Research and development		5,368			3,960			14,445			11,395
	General and administration		6,000			4,851			16,559			15,157
	Total share-based compensation expense	$	20,770		$	15,340		$	55,710		$	44,189
Amortization of intangible assets expense included in Consolidated Statements of Operations:
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
		2011			2010			2011			2010
	Cost of revenue	$	669		$	887		$	2,864		$	2,295
	Sales and marketing		1,957			2,076			5,874			6,237
	Research and development		940			925			3,254			2,775
	General and administration		905			839			2,616			2,494
	Total amortization of intangible assets expense	$	4,471		$	4,727		$	14,608		$	13,801
		Three Months Ended						Nine Months Ended
		November 30,			November 30,			November 30,			November 30,
		2011			2010			2011			2010
GAAP net income		$	38,240		$	26,017		$	110,657		$	73,744
Provision for income taxes			17,180			14,009			46,722			39,708
GAAP income before provision for income taxes		$	55,420		$	40,026		$	157,379		$	113,452
Add: Non-cash share-based compensation expense			20,770			15,340			55,710			44,189
Add: Amortization of intangible assets			4,471			4,727			14,608			13,801
Non-GAAP adjusted income before provision for income taxes		$	80,661		$	60,093		$	227,697		$	171,442
Provision for income taxes (1)			25,005			21,033			68,521			60,005
Non-GAAP adjusted net income		$	55,656		$	39,060		$	159,176		$	111,437
Non-GAAP adjusted net income-diluted		$	55,656		$	39,060		$	159,176		$	111,437
Non-GAAP adjusted net income per share:
	Basic	$	0.29		$	0.20		$	0.82		$	0.59
	Diluted	$	0.28		$	0.20		$	0.81		$	0.57
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision		$	80,661		$	60,093		$	227,697		$	171,442
	Estimated annual effective tax rate		31	%		35	%		31	%		35	%
Non-GAAP provision for income taxes before discrete tax benefit		$	25,005		$	21,033		$	70,586		$	60,005
	Discrete tax benefit		-			-			2,065			-
Provision for income taxes on Non-GAAP adjusted net income		$	25,005		$	21,033		$	68,521		$	60,005

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 30,			November 30,			November 30,
	2011			2010			2011			2010
GAAP gross profit	$	244,837		$	195,832		$	701,817		$	555,798
Add: Non-cash share-based compensation expense		2,245			1,607			5,877			4,168
Add: Amortization of intangible assets		669			887			2,864			2,295
Non-GAAP gross profit	$	247,751		$	198,326		$	710,558		$	562,261
Non-GAAP gross margin		85	%		84	%		85	%		85	%
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2011			2010			2011			2010
GAAP operating expenses	$	191,265		$	157,876		$	550,409		$	449,532
Deduct: Non-cash share-based compensation expense		(18,525	)		(13,733	)		(49,833	)		(40,021	)
Deduct: Amortization of intangible assets		(3,802	)		(3,840	)		(11,744	)		(11,506	)
Non-GAAP adjusted operating expenses	$	168,938		$	140,303		$	488,832		$	398,005
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2011			2010			2011			2010
GAAP operating income	$	53,572		$	37,956		$	151,408		$	106,266
Add: Non-cash share-based compensation expense		20,770			15,340			55,710			44,189
Add: Amortization of intangible assets		4,471			4,727			14,608			13,801
Non-GAAP adjusted operating income	$	78,813		$	58,023		$	221,726		$	164,256
Non-GAAP adjusted operating margin		27.2	%		24.6	%		26.5	%		24.7	%