- Quarterly total revenue of $504
million, up 13% year-over-year
- Quarterly subscription revenue of $442
million, up 13% year-over-year
- Quarterly operating cash flow of $120
million, up 12% year-over-year
Red Hat, Inc. (NYSE: RHT), the world's leading provider of open
source solutions, today announced financial results for the second
quarter of fiscal year 2016 ended August 31, 2015.
“Strong execution in Q2 contributed to total revenue results
that exceeded 21% year-over-year growth on a constant currency
basis. We were pleased with the progress of our technologies that
address cloud deployments across multiple footprints. Specifically
in this quarter, we achieved a public cloud milestone in our
Certified Cloud and Service Provider program of an annualized
run-rate of $100 million.” stated Jim Whitehurst, President and
Chief Executive Officer of Red Hat. “We are also thrilled to be the
first open source company to achieve an annualized run-rate of $2
billion in revenue this quarter. In addition, we believe Red Hat is
well-positioned for the second half of the fiscal year as we
continue to benefit from delivering innovation to our
customers.”
“We exceeded guidance across a number of financial metrics. Our
growth in revenue led to strong growth of non-GAAP operating income
and non-GAAP EPS of 13% and 15%, respectively. We also continued to
invest in our initiatives to deliver open, hybrid cloud solutions
which support our long-term growth opportunities,” stated Frank
Calderoni, Executive Vice President, Operations and Chief Financial
Officer of Red Hat. “Our year-to-date operating cash flow was $329
million, up 21% compared to the first half of FY15. We also
returned additional value to shareholders in the form of a $70
million share repurchase in the quarter”.
Revenue: Total revenue for the quarter was $504 million,
up 13% in U.S. dollars year-over-year, or 21% measured in constant
currency. Constant currency references in this release are as
detailed in the tables below. Subscription revenue for the quarter
was $442 million, up 13% in U.S. dollars year-over-year, or 21%
measured in constant currency.
Subscription Revenue Breakout: Subscription revenue in
Infrastructure-related offerings for the quarter was $363 million,
an increase of 9% in U.S. dollars year-over-year and 17% measured
in constant currency. Subscription revenue in Application
Development-related and other emerging technologies offerings for
the quarter was $79 million, an increase of 37% in U.S. dollars
year-over-year and 48% measured in constant currency.
Operating Income: GAAP operating income for the quarter
was $76 million, up 19% year-over-year. After adjusting for
non-cash share-based compensation expense, amortization of
intangible assets and transaction costs related to business
combinations, as detailed in the tables below, non-GAAP operating
income for the second quarter was $123 million, up 13%
year-over-year. For the second quarter, GAAP operating margin was
15.2% and non-GAAP operating margin was 24.4%.
Net Income: GAAP net income for the quarter was $51
million, or $0.28 per diluted share, compared with $47 million, or
$0.25 per diluted share, in the year-ago quarter. After adjusting
for non-cash share-based compensation expense, amortization of
intangible assets, transaction costs related to business
combinations, and non-cash interest expense from accretion of debt
discount, as detailed in the tables below, non-GAAP net income for
the quarter was $88 million, or $0.47 per diluted share, as
compared to $78 million, or $0.41 per diluted share, in the
year-ago quarter. Non-GAAP diluted weighted average shares
outstanding excludes any dilution resulting from the convertible
notes because any potential dilution is expected to be offset by
our convertible note hedge transactions.
Cash: Operating cash flow was $120 million for the second
quarter, an increase of 12% on a year-over-year basis. Total cash,
cash equivalents and investments as of August 31, 2015 was $2.0
billion after repurchasing approximately $70 million, or
approximately 895 thousand shares, of common stock in the second
quarter. As of August 31, 2015, the remaining balance in the
current repurchase authorization was approximately $430
million.
Deferred Revenue: At quarter end, the company’s total
deferred revenue balance was $1.41 billion, an increase of 13% on a
year-over-year basis. The negative impact to total deferred revenue
from changes in foreign exchange rates was $91 million
year-over-year. On a constant currency basis, total deferred
revenue would have been up 20% year-over-year as detailed in the
tables below.
Outlook
Red Hat’s outlook assumes similar business conditions and
foreign exchange rates as of September 18, 2015. The full year
revenue guidance is increased to $2.034 billion to $2.044 billion.
Full year non-GAAP operating margin is targeted to 23.6%, and cash
flow is increased to $690 million to $705 million. Full year
diluted non-GAAP earnings per share guidance is in the range of
$1.85-$1.87 per share, assuming a $1 million per quarter forecast
for other income, a 29% annual effective tax rate and 186 million
fully diluted shares outstanding. Non-GAAP guidance is derived by
subtracting the estimated full year impact of non-cash share-based
compensation expense of approximately $160 million, amortization of
intangible assets expense of approximately $24 million and non-cash
interest expense from accretion of debt discount of approximately
$19 million.
For the third quarter, Red Hat’s outlook is for revenue of $519
million to $523 million, non-GAAP operating margin of approximately
23.0% and non-GAAP earnings per share of $0.47. Non-GAAP guidance
is derived by subtracting the estimated third quarter impact of
non-cash share-based compensation expense of approximately $42
million and amortization of intangible assets of approximately $6
million, and non-cash interest expense from accretion of debt
discount of approximately $5 million.
These statements are forward-looking and actual results may
differ materially. Refer to the Forward-Looking Statements below
for information on the factors that could cause our actual results
to differ materially.
Webcast and Website Information
A live webcast of Red Hat's results will begin at 5:00 pm ET
today. The webcast, in addition to a transcript of prepared remarks
and a presentation containing financial highlights and supplemental
metrics, 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. Additional information on Red Hat's reported results,
including a reconciliation of the non-GAAP adjusted results, are
included in the financial tables below.
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 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 the ability of the Company to compete effectively;
the ability to deliver and stimulate demand for new products and
technological innovations on a timely basis; delays or reductions
in information technology spending; the effects of industry
consolidation; 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; 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, Red Hat Enterprise Linux, the
Shadowman logo, and JBoss are trademarks of Red Hat, Inc.,
registered in the U.S. and other countries. Linux is the registered
trademark of Linus Torvalds in the U.S. and other countries.
RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands - except per share amounts)
Three Months Ended Six Months
Ended August 31, August 31, August 31,
August 31, 2015 2014 2015 2014
Revenue: Subscriptions $441,526 $389,495 $866,319 $761,462
Training and services 62,622 56,404 118,830 108,191
Total subscription, training and services revenue 504,148 445,899
985,149 869,653 Cost of revenue: Subscriptions 30,996
27,791 60,843 55,551 Training and services 44,968 39,383 86,519
76,066 Total cost of subscription, training and
services revenue 75,964 67,174 147,362 131,617 Total
gross profit 428,184 378,725 837,787 738,036 Operating
expense: Sales and marketing 205,101 174,520 403,973 351,358
Research and development 102,488 95,265 199,919 185,204 General and
administrative 44,125 44,713 86,496 86,284 Total
operating expense 351,714 314,498 690,388 622,846 Income
from operations 76,470 64,227 147,399 115,190 Interest income 2,895
2,010 5,611 3,852 Interest expense 5,733 - 11,448 - Other income
(expense), net (1,245) (289) (1,448) 68 Income before
provision for income taxes 72,387 65,948 140,114 119,110 Provision
for income taxes 20,992 19,125 40,633 34,542 Net income
$51,395 $46,823 $99,481 $84,568 Net income per share: Basic
$0.28 $0.25 $0.54 $0.45 Diluted $0.28 $0.25 $0.53 $0.44
Weighted average shares outstanding: Basic 183,179 188,162 183,155
188,767 Diluted 186,750 190,755 186,493 191,135
RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In
thousands)
ASSETS August 31, February 28, 2015
2015 (1) (Unaudited) Current assets: Cash and cash
equivalents $991,607 $1,047,473 Investments in debt and equity
securities 180,806 215,254 Accounts receivable, net 302,098 468,021
Deferred tax assets, net 99,184 86,796 Prepaid expenses 130,413
150,715 Other current assets 1,853 1,980 Total current
assets 1,705,961 1,970,239 Property and equipment, net
164,718 172,151 Goodwill 928,178 927,060 Identifiable intangibles,
net 127,888 134,276 Investments in debt securities 823,417 546,016
Other assets, net 51,309 53,243 Total assets $3,801,471
$3,802,985
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued expenses $212,828
$237,733 Deferred revenue 1,047,732 1,095,115 Other current
obligations 1,839 1,844 Total current liabilities 1,262,399
1,334,692 Convertible notes 724,621 715,402 Long term
deferred revenue 365,708 387,213 Other long term obligations 80,693
77,340 Stockholders' equity: Common stock 23 23 Additional paid-in
capital 2,094,202 1,963,851 Retained earnings 999,854 900,373
Treasury stock, at cost (1,660,580) (1,515,288) Accumulated other
comprehensive loss (65,449) (60,621) Total stockholders'
equity 1,368,050 1,288,338 Total liabilities and
stockholders' equity $3,801,471 $3,802,985 (1)
Derived from audited financial statements
RED HAT,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended Six Months Ended August 31,
August 31, August 31, August 31, 2015
2014 2015 2014 Cash flows from
operating activities: Net income $51,395 $46,823 $99,481 $84,568
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 18,538 19,539
37,085 38,463 Share-based compensation expense 40,537 36,605 77,059
65,319 Deferred income taxes (3,843) 975 (1,929) 3,905 Net
amortization of bond premium on available-for-sale debt securities
3,139 2,525 5,736 4,558 Accretion of debt discount and amortization
of debt issuance costs 5,222 595 10,417 - Other 1,078 - 1,908 (353)
Changes in operating assets and liabilities net of effects of
acquisitions: Accounts receivable (17,908) (18,349) 161,479 78,231
Prepaid expenses 13,077 (2,391) 12,651 (7,580) Accounts payable and
accrued expenses 34,415 27,266 (17,932) 29,921 Deferred revenue
(25,017) (6,209) (56,579) (25,957) Other (356) 358 (340) 1,349
Net cash provided by operating activities 120,277 107,737
329,036 272,424 Cash flows from investing activities:
Purchase of available-for-sale debt securities (196,613) (50,567)
(602,824) (319,141) Proceeds from sales and maturities of
available-for-sale debt securities 170,617 140,101 353,200 409,532
Acquisition of businesses, net of cash acquired (1,700) (66,183)
(1,700) (217,804) Purchase of other intangible assets (2,068)
(1,198) (5,997) (1,751) Purchase of property and equipment (10,277)
(14,290) (20,973) (22,884) Other (1,159) (1,038) (3,158) 2,434
Net cash provided by (used in) investing activities (41,200)
6,825 (281,452) (149,614) Cash flows from financing
activities: Excess tax benefits from share-based payment
arrangements 2,812 423 9,231 1,409 Proceeds from exercise of common
stock options 480 644 2,589 689 Purchase of treasury stock (70,079)
(80,028) (70,079) (160,061) Payments related to net settlement of
employee share-based compensation awards (7,726) (3,831) (32,937)
(17,561) Payments on other borrowings (385) (1,635) (737) (1,990)
Net cash used in financing activities (74,898) (84,427)
(91,933) (177,514) Effect of foreign currency exchange rates
on cash and cash equivalents (3,494) (8,902) (11,517) (6,657) Net
increase (decrease) in cash and cash equivalents 685 21,233
(55,866) (61,361) Cash and cash equivalents at beginning of the
period 990,922 564,148 1,047,473 646,742 Cash and cash
equivalents at end of period $991,607 $585,381 $991,607 $585,381
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, 2015
2014 2015 2014 Cost of revenue $4,151
$3,425 $7,877 $6,543 Sales and marketing 16,782 13,691 32,194
23,929 Research and development 12,022 11,098 22,897 19,962 General
and administration 7,582 8,391 14,091 14,885 Total share-based
compensation expense $40,537 $36,605 $77,059 $65,319
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, 2015 2014 2015
2014 Cost of revenue $2,618 $2,486 $5,192 $5,102
Sales and marketing 2,010 1,992 4,014 3,574 Research and
development 292 959 542 1,917 General and administration 1,160
1,607 2,212 3,035 Total amortization of intangible assets expense
$6,080 $7,044 $11,960 $13,628 Non-cash interest
expense from accretion of debt discount included in Consolidated
Statements of Operations:
Three Months Ended Six
Months Ended August 31, August 31, August
31, August 31, 2015 2014 2015
2014 Total non-cash interest expense from accretion
of debt discount $4,620 - $9,219 - Transaction costs related
to business combinations included in Consolidated Statements of
Operations:
Three Months Ended Six Months
Ended August 31, August 31, August 31,
August 31, 2015 2014 2015 2014
Transaction costs related to business combinations $51 $949
$51 2,940
Three Months Ended Six Months
Ended August 31, August 31, August 31,
August 31, 2015 2014 2015 2014
GAAP net income $51,395 $46,823 $99,481 $84,568
Provision for income taxes 20,992 19,125 40,633 34,542 GAAP
income before provision for income taxes $72,387 $65,948 $140,114
$119,110 Add: Non-cash share-based compensation expense
40,537 36,605 77,059 65,319 Add: Amortization of intangible assets
6,080 7,044 11,960 13,628 Add: Non-cash interest expense from
accretion of debt discount 4,620 - 9,219 - Add: Transaction costs
related to business combinations 51 949 51 2,940 Non-GAAP
adjusted income before provision for income taxes $123,675 $110,546
$238,403 $200,997 Provision for income taxes 35,866 32,058
69,137 58,289 Non-GAAP adjusted net income (basic and
diluted) $87,809 $78,488 $169,266 $142,708 Non-GAAP adjusted
diluted weighted average shares outstanding: GAAP diluted weighted
average shares outstanding 186,750 190,755 186,493 191,135 Dilution
offset from convertible note hedge transactions (585) - (329) -
Non-GAAP diluted weighted average shares outstanding 186,165
190,755 186,164 191,135 Non-GAAP adjusted net income per
share: Basic $0.48 $0.42 $0.92 $0.76 Diluted $0.47 $0.41 $0.91
$0.75
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 31, August
31, August 31, August 31, 2015 2014
2015 2014 GAAP gross profit $428,184 $378,725
$837,787 $738,036 Add: Non-cash share-based compensation
expense 4,151 3,425 7,877 6,543 Add: Amortization of intangible
assets 2,618 2,486 5,192 5,102 Non-GAAP gross profit
$434,953 $384,636 $850,856 $749,681 Non-GAAP gross margin
86.3% 86.3% 86.4% 86.2%
Three Months Ended
Six Months Ended August 31, August 31,
August 31, August 31, 2015 2014
2015 2014 GAAP operating expenses $351,714
$314,498 $690,388 $622,846 Deduct: Non-cash share-based
compensation expense (36,386) (33,180) (69,182) (58,776) Deduct:
Amortization of intangible assets (3,462) (4,558) (6,768) (8,526)
Deduct: Transaction costs related to business combinations (51)
(949) (51) (2,940) Non-GAAP adjusted operating expenses
$311,815 $275,811 $614,387 $552,604
Three Months
Ended Six Months Ended August 31, August
31, August 31, August 31, 2015 2014
2015 2014 GAAP operating income $76,470
$64,227 $147,399 $115,190 Add: Non-cash share-based
compensation expense 40,537 36,605 77,059 65,319 Add: Amortization
of intangible assets 6,080 7,044 11,960 13,628 Add: Transaction
costs related to business combinations 51 949 51 2,940
Non-GAAP adjusted operating income $123,138 $108,825 $236,469
$197,077 Non-GAAP adjusted operating margin 24.4% 24.4%
24.0% 22.7%
Three Months Ended
August 31, August 31, Year-Over-Year
2015 2014 Growth Rate GAAP subscription
revenue by offering type Infrastructure-related offerings $362,926
$331,967 9.3% Adjustment for currency impact $24,781 - Non-GAAP
Infrastructure-related subscription revenue on a constant currency
basis $387,707 $331,967 16.8% Application
development-related and other emerging technology offerings $78,600
$57,528 36.6% Adjustment for currency impact 6,341 - Non-GAAP
Application development-related and other emerging technology
subscription revenue on a constant currency basis $84,941 $57,528
47.7% GAAP subscription revenue 441,526 389,495 13.4%
Adjustment for currency impact 31,122 - Non-GAAP subscription
revenue on a constant currency basis $472,648 $389,495 21.3%
GAAP training and services revenue $62,622 $56,404 11.0% Adjustment
for currency impact 5,688 - Non-GAAP training and services revenue
on a constant currency basis $68,310 $56,404 21.1% GAAP
total subscription, training and services revenue $504,148 $445,899
13.1% Adjustment for currency impact 36,810 - Non-GAAP total
subscription, training and services revenue on a constant currency
basis $540,958 $445,899 21.3%
Six Months Ended
August 31, August 31,
Year-Over-Year 2015 2014 Growth Rate
GAAP subscription revenue by offering type
Infrastructure-related offerings $716,667 $651,018 10.1% Adjustment
for currency impact $49,786 - Non-GAAP Infrastructure-related
subscription revenue on a constant currency basis $766,453 $651,018
17.7% Application development-related and other emerging
technology offerings $149,652 $110,444 35.5% Adjustment for
currency impact 12,593 - Non-GAAP Application development-related
and other emerging technology subscription revenue on a constant
currency basis $162,245 $110,444 46.9% GAAP subscription
revenue 866,319 761,462 13.8% Adjustment for currency impact 62,379
- Non-GAAP subscription revenue on a constant currency basis
$928,698 $761,462 22.0% GAAP training and services revenue
$118,830 $108,191 9.8% Adjustment for currency impact 10,714 -
Non-GAAP training and services revenue on a constant currency basis
$129,544 $108,191 19.7% GAAP total subscription, training
and services revenue $985,149 $869,653 13.3% Adjustment for
currency impact 73,093 - Non-GAAP total subscription, training and
services revenue on a constant currency basis $1,058,242 $869,653
21.7%
RED HAT, INC. Supplemental
Information (Unaudited) (In thousands - except per share
amounts) Change in
deferred revenue balances
CurrentDeferredRevenue
Long
TermDeferredRevenue
TotalDeferredRevenue
Balance at August 31, 2014 920,605 331,192 1,251,797
Constant currency change in deferred revenue 186,313 65,947 252,260
Impact from foreign currency translation (59,186) (31,431) (90,617)
Balance at August 31, 2015 1,047,732 365,708 1,413,440
Year-over-year growth rate 13.8% 10.4% 12.9% Year-over-year
growth rate on a constant currency basis 20.2% 19.9% 20.2%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150921006375/en/
Red Hat, Inc.Media Contact:Stephanie Wonderlick,
571-421-8169swonderl@redhat.comorInvestor Relations:Tom
McCallum, 919-754-4630tmccallum@redhat.com
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