Red Hat Reports Fiscal 2007 Second Quarter Results

52% revenue growth / 6th consecutive quarter adding more than 10,000 new customers / 18th consecutive quarter of sequential growth in total revenue

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Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal 2007 second quarter.

Total revenue for the quarter was $99.7 million, an increase of 52% from the year-ago quarter and 19% from the prior quarter. Subscription revenue was $84.9 million, up 56% year-over-year and 19% sequentially. JBoss-related revenue of $7 million was at the top of management’s previously provided guidance.

Net income for the quarter was $11.0 million or $0.05 per diluted share compared with $16.7 million or $0.09 per diluted share for the second quarter of the last fiscal year. Due to differences in the accounting treatment for taxes and stock compensation expense between fiscal 2006 and 2007, net income is not directly comparable between these periods. After adjusting for these accounting differences, non-GAAP adjusted net income for the second quarter of fiscal 2007 was $23.7 million, or $0.11 per diluted share. This compares to non-GAAP adjusted net income of $17.7 million, or $0.09 per diluted share in the second quarter of the last fiscal year.

At quarter end, the company's total deferred revenue balance was $284.1 million, an increase of $29.4 million, or 12% when compared to the end of the last fiscal quarter.

Other highlights from the quarter included:

- Quarterly gross margin improved to 84% from 82% in the year-ago period.
- Red Hat Enterprise Linux OEM revenue grew 90% year-over-year.
- Total cash and investments as of August 31, 2006 were $1.0 billion.

“The second quarter was one of intense focus on integrating our recent acquisitions in Argentina, Brazil, India and, of course, JBoss,” stated Charlie Peters, Executive Vice President and Chief Financial Officer. “We are pleased with the pace and progress of our integration work and believe that results in subsequent quarters will benefit from the investments in employee time and expense made in Q2. Revenue grew nicely and we expect the recent introduction of the Red Hat Application Stack will help continue that trend. We expect operating results and cash flow will improve in the second half of fiscal 2007 since much of the heavy integration work is behind us already.”

“Our better than expected revenue and earnings per share speak to the ongoing demand for open source solutions that we continue to see worldwide,” stated Dion Cornett, Vice President of Investor Relations. “Moreover, the particular strength we saw in hardware OEM revenue growth stands in stark contrast to the reported weakness experienced by server suppliers this past quarter. We feel this difference highlights the value Red Hat is able to provide that extends beyond mere box counts.”
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