RHT
$99.42
Red Hat
$.54
.55%
Earnings Details
1st Quarter May 2017
Tuesday, June 20, 2017 4:15:00 PM
Tweet Share Watch
Summary

Red Hat Beats

Red Hat (RHT) reported 1st Quarter May 2017 earnings of $0.59 per share on revenue of $676.8 million. The consensus earnings estimate was $0.53 per share on revenue of $646.7 million. The Earnings Whisper number was $0.55 per share. Revenue grew 19.2% on a year-over-year basis.

The company said it expects second quarter non-GAAP earnings of approximately $0.67 per share on revenue of $695.0 million to $702.0 million. The current consensus earnings estimate is $0.65 per share on revenue of $676.9 million for the quarter ending August 31, 2017. The company also said it now expects fiscal 2018 earnings of $2.66 to $2.70 per share on revenue of $2.785 billion to $2.825 billion. The company's previous guidance was earnings of $2.60 to $2.64 per share on revenue of $2.72 billion to $2.76 billion and the current consensus earnings estimate is $2.63 per share on revenue of $2.74 billion for the year ending February 28, 2018.

Red Hat Inc is a provider of open source software solutions, using a community-powered approach to develop and offer reliable and high-performing operating system, middleware, virtualization, storage and cloud technologies.

Results
Reported Earnings
$0.59
Earnings Whisper
$0.55
Consensus Estimate
$0.53
Reported Revenue
$676.8 Mil
Revenue Estimate
$646.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Red Hat Reports First Quarter Results for Fiscal Year 2018

First quarter total subscription revenue of $597 million, up 19% year-over-year or 20% in constant currency

First quarter Application Development-related and other emerging technology subscription revenue of $139 million, up 41% year-over-year or 42% in constant currency

--Quarter-end deferred revenue balance of $2.05 billion, up 21% year-over-year

Red Hat, Inc. (RHT), the world’s leading provider of open source solutions, today announced financial results for the first quarter of fiscal year 2018 ended May 31, 2017.

"The first quarter was a strong start to FY18, with double digit growth across a number of our financial metrics, including 19% total revenue growth in U.S. dollars or 20% measured in constant currency and over 40% growth in our Application Development-related and other emerging technology revenue," stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. "We continued to benefit from our ability to deliver important foundational and cloud enabling technologies, which help our customers to modernize and manage their infrastructure and application development platforms for the hybrid cloud."

"The strength of the first quarter results was driven in part by robust global demand for our technologies and increased commitments from our largest customers," stated Eric Shander, Executive Vice President and Chief Financial Officer of Red Hat. "The combination of our strong first quarter results, business momentum and solid execution by Red Hat associates has enabled us to increase our full year revenue outlook."

Revenue: Total revenue for the quarter was $677 million, up 19% in USD year-over-year, or 20% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $597 million, up 19% in USD year-over-year, or 20% measured in constant currency. Subscription revenue in the quarter was 88% of total revenue.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $458 million, an increase of 14% in USD year-over-year, and 14% as measured in constant currency. Subscription revenue from Application Development-related and other emerging technologies offerings for the quarter was $139 million, an increase of 41% in USD year-over-year, or 42% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $88 million, up 16% year-over-year. After adjusting for non-cash share-based compensation expense, amortization of intangible assets, and transaction costs related to business combinations, non-GAAP operating income for the first quarter was $139 million, up 12% year-over-year. Non-GAAP references in this release are detailed in the tables below. For the first quarter, GAAP operating margin was 12.9% and non-GAAP operating margin was 20.5%.

Net Income: GAAP net income for the quarter was $73 million, or $0.40 per diluted share, compared with $61 million, or $0.33 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 related to the debt discount, non-GAAP net income for the quarter was $102 million, or $0.56 per diluted share, as compared to $92 million, or $0.50 per diluted share, in the year-ago quarter. Non-GAAP diluted weighted average shares outstanding excludes any dilution resulting from our convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions.

Cash: Operating cash flow was $258 million for the first quarter, an increase of 11% on a year-over-year basis. Total cash, cash equivalents and investments as of May 31, 2017 was $2.31 billion after repurchasing approximately $62 million, or 714,900 shares, of common stock in the first quarter. The remaining balance in the current repurchase authorization as of May 31, 2017 was approximately $574 million.

Deferred revenue: At the end of the first quarter, the company’s total deferred revenue balance was $2.05 billion, an increase of 21% year-over-year. The full year positive impact to total deferred revenue from changes in foreign exchange rates was $13 million year-over-year. On a constant currency basis, total deferred revenue would have been up 21% year-over-year.

Outlook: Red Hat’s outlook assumes current business conditions and current foreign currency exchange rates.

For the full year:

Revenue is expected to be approximately $2.785 billion to $2.825 billion in USD.

GAAP operating margin is expected to be approximately 15.4% and non-GAAP operating margin is expected to be approximately 23.6%.

Fully diluted GAAP earnings per share (EPS) is expected to be approximately $1.76 to $1.80 per share, assuming 181 million fully diluted shares outstanding. Fully diluted non-GAAP EPS is expected to be approximately $2.66 to $2.70 per share, assuming 180 million fully diluted shares outstanding. Both GAAP and non-GAAP EPS assume approximately $2 million per quarter forecast for other income and an estimated annual effective tax rate of approximately 28% before discrete tax items.

Operating cash flow is expected to be approximately $850 million to $870 million.

For the second quarter:

-- Revenue is expected to be approximately $695 million to $702 million.

GAAP operating margin is expected to be approximately 15.7% and non-GAAP operating margin is expected to be approximately 24.0%.

Fully diluted GAAP EPS is expected to be approximately $0.43 per share, assuming 182 million fully diluted shares outstanding. Fully diluted non-GAAP EPS is expected to be approximately $0.67 per share, assuming 181 million fully diluted shares outstanding. Both GAAP and non-GAAP EPS assume a $2 million per quarter forecast for other income and an estimated annual effective tax rate of 28% before discrete tax items.

GAAP to non-GAAP reconciliation:

Full year non-GAAP operating margin guidance is derived by subtracting the estimated full year impact of non-cash share-based compensation expense of approximately $200 million, amortization of intangible assets of approximately $30 million and transaction costs related to business combinations of approximately $0.1 million. Full year fully diluted non-GAAP EPS guidance is derived by subtracting the expenses listed in the previous sentence and the full year impact of non-cash interest expense related to the debt discount of approximately $20 million and an estimated annual effective tax rate of approximately 28% before discrete tax items. Additionally, full year fully diluted non-GAAP EPS excludes approximately $20 million of discrete tax benefits related to share-based compensation that are included in full year fully diluted GAAP EPS. Full year fully diluted non-GAAP EPS excludes approximately 1 million diluted shares resulting from the convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions.

Second quarter non-GAAP operating margin guidance is derived by subtracting the estimated impact of non-cash share-based compensation expense of approximately $50 million and amortization of intangible assets of approximately $8 million. Second quarter fully diluted non-GAAP EPS guidance is derived by subtracting the expenses listed in the previous sentence and non-cash interest expense related to the debt discount of approximately $5 million and an estimated annual effective tax rate of 28% before discrete tax items. Additionally, second quarter fully diluted non-GAAP EPS excludes approximately $3 million of discrete tax benefits related to share-based compensation that are included in second quarter fully diluted GAAP EPS. Second quarter fully diluted non-GAAP EPS excludes approximately 1 million diluted shares resulting from the convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions.

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 copy of our prepared remarks and slides 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 provide 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 integration of acquisitions and the ability to market successfully acquired technologies and products; fluctuations in exchange rates; the effects of industry consolidation; 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; changes in and a dependence on key personnel; the ability to meet financial and operational challenges encountered in our international operations; and ineffective management of, and control over, the Company’s growth and international operations, as well as other factors contained in our most recent Annual Report on Form 10-K (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 and the Shadowman logo are trademarks or registered trademarks of Red Hat, Inc. or its subsidiaries in the U.S. and other countries. Linux(R) 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
May 31,
May 31,
2017
2016
Revenue:
Subscriptions
$596,508
$501,665
Training and services
80,288
66,234
Total subscription and training and services revenue
676,796
567,899
Cost of revenue:
Subscriptions
43,633
36,545
Training and services
57,063
47,503
Total cost of subscription and training and services revenue
100,696
84,048
Gross profit
576,100
483,851
Operating expense:
Sales and marketing
296,459
243,248
Research and development
137,163
115,016
General and administrative
54,870
50,224
Total operating expense
488,492
408,488
Income from operations
87,608
75,363
Interest income
3,993
3,430
Interest expense
6,085
5,887
Other income (expense), net
(586)
(553)
Income before provision for income taxes
84,930
72,353
Provision for income taxes
11,740
11,169
Net income
$73,190
$61,184
Net income per share:
Basic
$0.41
$0.34
Diluted
$0.40
$0.33
Weighted average shares outstanding:
Basic
177,243
181,168
Diluted
181,810
184,187
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
May 31,
February 28,
2017
2017 (1)
Current assets:
Cash and cash equivalents
$1,230,457
$1,090,808
Investments in debt securities, short-term
408,026
369,983
Accounts receivable, net
429,908
634,821
Prepaid expenses
192,551
200,609
Other current assets
40,707
19,481
Total current assets
2,301,649
2,315,702
Property and equipment, net
195,281
189,629
Goodwill
1,047,038
1,040,709
Identifiable intangibles, net
133,365
137,767
Investments in debt securities, long-term
671,098
672,440
Deferred tax assets, net
92,829
104,833
Other assets, net
71,176
74,105
Total assets
$4,512,436
$4,535,185
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$303,668
$376,957
Deferred revenue, short-term
1,486,409
1,512,762
Other current obligations
1,303
1,354
Total current liabilities
1,791,380
1,891,073
Deferred revenue, long-term
567,755
557,194
Convertible notes
751,173
745,633
Other long term obligations
96,584
93,965
Stockholders’ equity:
Common stock
24
24
Additional paid-in capital
2,295,123
2,294,462
Retained earnings
1,426,181
1,352,991
Treasury stock, at cost
(2,350,044)
(2,311,805)
Accumulated other comprehensive loss
(65,740)
(88,352)
Total stockholders’ equity
1,305,544
1,247,320
Total liabilities and stockholders’ equity
$4,512,436
$4,535,185
(1) Derived from audited financial statements
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
May 31,
May 31,
2017
2016
Cash flows from operating activities:
Net income
$73,190
$61,184
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
21,817
20,702
Amortization of debt discount and transaction costs
5,540
5,365
Share-based compensation expense
43,718
41,275
Deferred income taxes
7,917
(2,152)
Net amortization of bond premium on debt securities available for
2,436
3,540
sale
Other
961
(765)
Changes in operating assets and liabilities net of effects of
acquisitions:
Accounts receivable
208,761
190,330
Prepaid expenses
(7,708)
(9,373)
Accounts payable and accrued expenses
(55,338)
(30,186)
Deferred revenue
(45,717)
(46,093)
Other
2,295
(1,530)
Net cash provided by operating activities
257,872
232,297
Cash flows from investing activities:
Purchase of investment in debt securities available for sale
(149,524)
(134,601)
Proceeds from maturities of investment in debt securities available
112,041
99,033
for sale
Proceeds from sales of investments in debt securities available for
14,324
18,149
sale
Purchase of developed software and other intangible assets
(1,774)
(2,868)
Purchase of property and equipment
(25,900)
(17,653)
Other
-
(111)
Net cash used in investing activities
(50,833)
(38,051)
Cash flows from financing activities:
Proceeds from exercise of common stock options
2,968
1,380
Proceeds from employee stock purchase program
11,761
-
Purchase of treasury stock
(61,987)
(66,478)
Payments related to net settlement of share-based compensation awards
(41,010)
(31,079)
Payments on other borrowings
(443)
(445)
Other
-
500
Net cash used in financing activities
(88,711)
(96,122)
Effect of foreign currency exchange rates on cash and cash
21,321
5,663
equivalents
Net increase (decrease) in cash and cash equivalents
139,649
103,787
Cash and cash equivalents at beginning of the period
1,090,808
927,778
Cash and cash equivalents at end of period
$1,230,457
$1,031,565
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
May 31,
May 31,
2017
2016
Cost of revenue
$3,948
$4,305
Sales and marketing
20,612
18,440
Research and development
13,447
12,002
General and administration
5,711
6,528
Total share-based compensation expense
$43,718
$41,275
Amortization of intangible assets expense included in Consolidated
Statements of Operations:
Three Months Ended
May 31,
May 31,
2017
2016
Cost of revenue
$3,836
$3,623
Sales and marketing
1,459
1,916
Research and development
34
34
General and administration
1,826
1,753
Total amortization of intangible assets expense
$7,155
$7,326
Non-cash interest expense related to the debt discount included in
Consolidated Statements of Operations:
Three Months Ended
May 31,
May 31,
2017
2016
Total non-cash interest expense related to the debt discount
$4,867
$4,732
Transaction costs related to business combinations included in
Consolidated Statements of Operations:
Three Months Ended
May 31,
May 31,
2017
2016
Transaction costs related to business combinations
$142
-
Three Months Ended
May 31,
May 31,
2017
2016
GAAP net income
$73,190
$61,184
GAAP provision for income taxes
11,740
11,169
GAAP income before provision for income taxes
$84,930
$72,353
Add: Non-cash share-based compensation expense
43,718
41,275
Add: Amortization of intangible assets
7,155
7,326
Add: Non-cash interest expense related to the debt discount
4,867
4,732
Add: Transaction costs related to business combinations
142
-
Non-GAAP adjusted income before provision for income taxes
$140,812
$125,686
Non-GAAP provision for income taxes (1)
39,115
33,507
Non-GAAP adjusted net income (basic and diluted)
$101,697
$92,179
Non-GAAP adjusted diluted weighted average shares outstanding:
GAAP diluted weighted average shares outstanding
181,810
184,187
Dilution offset from convertible note hedge transactions
(1,593)
-
Non-GAAP diluted weighted average shares outstanding
180,217
184,187
Non-GAAP adjusted net income per share:
Basic
$0.57
$0.51
Diluted
$0.56
$0.50
(1) Non-GAAP provision for income taxes:
Non-GAAP adjusted income before provision for income taxes
$140,812
$125,686
GAAP estimated annual effective tax rate
27.5%
27.0%
Provision for income taxes on Non-GAAP adjusted net income before
$38,723
$33,935
discrete tax benefits
Discrete tax expense (benefit), excluding discrete benefits related
392
(428)
to share-based compensation
Provision for income taxes on Non-GAAP adjusted net income excluding
$39,115
$33,507
discrete benefits related to share-based compensation
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED
RESULTS
(Unaudited)
(In thousands)
Reconciliation of GAAP results to non-GAAP adjusted results
Three Months Ended
May 31,
May 31,
2017
2016
GAAP gross profit
$576,100
$483,851
Add: Non-cash share-based compensation expense
3,948
4,305
Add: Amortization of intangible assets
3,836
3,623
Non-GAAP gross profit
$583,884
$491,779
Non-GAAP gross margin
86.3%
86.6%
Three Months Ended
May 31,
May 31,
2017
2016
GAAP operating expenses
$488,492
$408,488
Deduct: Non-cash share-based compensation expense
(39,770)
(36,970)
Deduct: Amortization of intangible assets
(3,319)
(3,703)
Deduct: Transaction costs related to business combinations
(142)
-
Non-GAAP adjusted operating expenses
$445,261
$367,815
Three Months Ended
May 31,
May 31,
2017
2016
GAAP operating income
$87,608
$75,363
Add: Non-cash share-based compensation expense
43,718
41,275
Add: Amortization of intangible assets
7,155
7,326
Add: Transaction costs related to business combinations
142
-
Non-GAAP adjusted operating income
$138,623
$123,964
Non-GAAP adjusted operating margin
20.5%
21.8%
Three Months Ended
May 31,
May 31,
Year-Over-Year
2017
2016
Growth Rate
GAAP subscription revenue by offering type
Infrastructure-related offerings
$457,961
$403,182
13.6%
Adjustment for currency impact
3,336
-
Non-GAAP Infrastructure-related subscription revenue on a constant
$461,297
$403,182
14.4%
currency basis
Application development-related and other emerging technology
$138,547
$98,483
40.7%
offerings
Adjustment for currency impact
1,087
-
Non-GAAP Application development-related and other emerging
$139,634
$98,483
41.8%
technology subscription revenue on a constant currency basis
GAAP subscription revenue
$596,508
$501,665
18.9%
Adjustment for currency impact
4,423
-
Non-GAAP subscription revenue on a constant currency basis
$600,931
$501,665
19.8%
GAAP training and services revenue
$80,288
$66,234
21.2%
Adjustment for currency impact
722
-
Non-GAAP training and services revenue on a constant currency basis
$81,010
$66,234
22.3%
GAAP total subscription, training and services revenue
$676,796
$567,899
19.2%
Adjustment for currency impact
5,145
-
Non-GAAP total subscription, training and services revenue on a
$681,941
$567,899
20.1%
constant currency basis
RED HAT, INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
(In thousands)
Change in deferred revenue balances
Current Deferred
Long-Term
Total Deferred
Revenue
Deferred
Revenue
Revenue
Balance at May 31, 2016
$1,251,096
$441,060
$1,692,156
Constant currency change in deferred revenue (1)
226,923
122,344
349,267
Impact from foreign currency translation
8,390
4,351
12,741
Balance at May 31, 2017
$1,486,409
$567,755
$2,054,164
Year-over-year growth rate
18.8%
28.7%
21.4%
Year-over-year growth rate on a constant currency basis
18.1%
27.7%
20.6%
(1) Change in deferred revenue includes approximately $0.4 million
acquired as part of a business combination.
Revenue growth by geographical segment
Americas
EMEA
APAC
Consolidated
Total revenue for the three months ended May 31, 2017
$438,380
$143,671
$94,745
$676,796
Adjustment for currency impact
(922)
5,654
413
5,145
Total revenue on a constant currency basis for the three months
$437,458
$149,325
$95,158
$681,941
ended May 31, 2017
Total revenue for the three months ended May 31, 2016
$365,723
$124,299
$77,877
$567,899
Year-over-year growth rate
19.9%
15.6%
21.7%
19.2%
Year-over-year growth rate on a constant currency basis
19.6%
20.1%
22.2%
20.1%

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170620006353r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20170620006353/en/

SOURCE: Red Hat, Inc.

Media Contact:
Red Hat, Inc.
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
or
Investor Relations:
Red Hat, Inc.
Tom McCallum, 919-754-4630
tmccallum@redhat.com