Red Hat Reports Third Quarter Results

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- 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

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.
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