RHT
$173.30
Red Hat
($.20)
(.12%)
Earnings Details
2nd Quarter August 2018
Wednesday, September 19, 2018 4:17:00 PM
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Summary

Red Hat Beats

Red Hat (RHT) reported 2nd Quarter August 2018 earnings of $0.86 per share on revenue of $822.7 million. The consensus earnings estimate was $0.82 per share on revenue of $827.6 million. The Earnings Whisper number was $0.85 per share. Revenue grew 13.7% on a year-over-year basis.

The company said it expects third quarter non-GAAP earnings of approximately $0.87 per share on revenue of $848.0 million to $856.0 million. The current consensus earnings estimate is $0.92 per share on revenue of $862.7 million for the quarter ending November 30, 2018. The company said it expects fiscal 2019 earnings of $3.45 to $3.49 per share on revenue of $3.36 billion to $3.395 billion. The company's previous guidance was earnings of $3.44 to $3.48 per share on revenue of $3.375 billion to $3.410 billion and the current consensus earnings estimate is $3.47 per share on revenue of $3.39 billion for the year ending February 28, 2019.

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
$0.86
Earnings Whisper
$0.85
Consensus Estimate
$0.82
Reported Revenue
$822.7 Mil
Revenue Estimate
$827.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Red Hat Reports Second Quarter Results for Fiscal Year 2019

  • Second quarter total revenue of $823 million, up 14% year-over-year, or 14% in constant currency
  • Second quarter Application Development-related and other emerging technology subscription revenue of $196 million, up 31% year-over-year, or 31% in constant currency
  • Quarter-end deferred revenue balance of $2.4 billion, up 17% year-over-year, or 19% in constant currency

RALEIGH, N.C.--(BUSINESS WIRE)-- 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 2019 ended August 31, 2018.

“Customers continue to prioritize their digital transformation initiatives, and they are adopting Red Hat’s hybrid cloud enabling technologies to modernize their applications and drive greater efficiency and effectiveness in their business,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “The expansion of our technology portfolio has increased our strategic importance with customers, which is evidenced by the number of deals over five million dollars in the second quarter more than doubling year-over-year.”

“Our second quarter results were consistent with our guidance and we drove 20% growth in total backlog to $3.3 billion,” said Eric Shander, Executive Vice President and Chief Financial Officer for Red Hat. “We are re-affirming our full year growth in constant currency at 16%-17% year-over-year; however, we are adjusting our full year total revenue guidance in dollars by approximately $15 million, solely to account for the change in FX rates.”

Revenue: Total revenue for the quarter was $823 million, up 14% in USD year-over-year, or 14% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $723 million, up 13% in USD year-over-year, or 14% 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 $527 million, an increase of 8% in USD year-over-year, or 8% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $196 million, an increase of 31% in USD year-over-year, or 31% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $135 million. 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 second quarter was $197 million, up 3% year-over-year. For the second quarter, GAAP operating margin was 16.4% and non-GAAP operating margin was 23.9%. Non-GAAP references in this release are detailed in the tables below.

Provision for Income Taxes: GAAP provision for income taxes for the second quarter included a tax charge of approximately $18 million due to newly issued IRS guidance related to the Tax Cuts and Jobs Act (“IRS Guidance”), resulting primarily from the re-measurement of deferred tax assets associated with the non-deductibility of certain share-based compensation and the reversal of certain share-based compensation benefits recognized during the first quarter of fiscal year 2019. Non-GAAP provision for income tax excludes this impact related to the IRS Guidance.

Net Income: GAAP net income for the quarter was $87 million, or $0.46 diluted earnings per share (“EPS”), compared with GAAP net income of $97 million, or $0.53 diluted EPS, 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 $157 million, or $0.85 diluted EPS, as compared to $138 million, or $0.77 diluted EPS, in the year-ago quarter. Non-GAAP diluted weighted average shares outstanding excludes dilution that is expected to be offset by our convertible note hedge transactions.

Cash: Operating cash flow was $133 million for the second quarter, down 7% on a year-over-year basis. Operating cash flow includes the impact of our recent adoption of ASU 2016-15: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which requires the portion of repayments of convertible notes during the second quarter that is attributable to debt discount to be classified as operating cash flow. Non-GAAP cash flow provided by operations, which excludes this impact, was $165 million, an increase of 16% on a year-over-year basis compared to GAAP operating cash flow. Total cash, cash equivalents and investments as of August 31, 2018 was $2.2 billion after repurchasing approximately $250 million, or approximately 1.7 million shares, of common stock in the second quarter. The remaining balance in the current repurchase authorization as of August 31, 2018 was approximately $750 million.

Deferred revenue: At the end of the second quarter, the Company’s total deferred revenue balance was $2.4 billion, an increase of 17% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $40 million year-over-year. On a constant currency basis, total deferred revenue would have been up 19% 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 $3.360 billion to $3.395 billion in USD.
  • GAAP operating margin is expected to be approximately 16.4% and non-GAAP operating margin is expected to be approximately 23.9%.
  • Diluted GAAP EPS is expected to be approximately $2.29 to $2.33, assuming 186 million diluted shares outstanding. Diluted non-GAAP EPS is expected to be approximately $3.45 to $3.49, assuming 184 million diluted shares outstanding. Both GAAP and non-GAAP EPS assume a $4 million per quarter forecast for other income. The GAAP estimated tax rate assumes a rate of 23.4% before discrete tax items and the non-GAAP estimated tax rate assumes a rate of approximately 22.5% before discrete tax items.
  • Non-GAAP operating cash flow is expected to be approximately $1.035 billion to $1.045 billion.

For the third quarter:

  • Revenue is expected to be approximately $848 to $856 million in USD.
  • GAAP operating margin is expected to be approximately 16.1% and non-GAAP operating margin is expected to be approximately 24.0%.
  • Diluted GAAP EPS is expected to be approximately $0.56, assuming 186 million diluted shares outstanding. Diluted non-GAAP EPS is expected to be approximately $0.87, assuming 184 million diluted shares outstanding. Both GAAP and non-GAAP EPS assume a $4 million forecast for other income. The GAAP estimated tax rate assumes a rate of 23.4% before discrete tax items and the non-GAAP estimated tax rate assumes a rate of approximately 22.5% 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 $215 million and amortization of intangible assets of approximately $39 million. Full year 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 tax expense at an estimated annual non-GAAP effective tax rate of approximately 22.5% before discrete tax items. Additionally, full year diluted non-GAAP EPS excludes approximately $12.8 million of discrete tax benefits related to share-based compensation and certain non-deductible share-based compensation under IRS Guidance that are included in full year diluted GAAP EPS. Full year GAAP EPS does not take into account any future discrete tax benefit or expense because such amounts are unknown. Full year diluted non-GAAP EPS excludes approximately 2 million diluted shares related to the convertible notes, which are expected to be offset by our convertible note hedge transactions.

The full year outlook for non-GAAP cash flow provided by operations excludes the portion of repayments of convertible notes that are attributable to debt discount. The Company is not able to predict the timing and amount of any future convertible note settlements initiated by a holder prior to maturity so forecasting GAAP operating cash flow is not possible to calculate without unreasonable effort.

Third quarter non-GAAP operating margin guidance is derived by subtracting the estimated impact of non-cash share-based compensation expense of approximately $57 million and amortization of intangible assets of approximately $10 million. Third quarter 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 tax expense at an estimated annual non-GAAP effective tax rate of 22.5% before discrete tax items. Third quarter GAAP EPS does not take into account any future discrete tax benefit or expense because such amounts are unknown. Third quarter diluted non-GAAP EPS excludes approximately 2 million diluted shares related to the convertible notes, which are expected to be offset by our convertible note hedge transactions.

The estimated annual non-GAAP effective tax rate of 22.5% for both the full year and third quarter outlook excludes the impact of certain non-deductible share-based compensation under IRS Guidance.

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; risks related to errors or defects in our offerings and third-party products upon which our offerings depend; risks related to the security of our offerings and other data security vulnerabilities; 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; 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 Quarterly Report on Form 10-Q (copies of which may be accessed through the Securities and Exchange Commission's website, (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® 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,
2018

2017 (1)

2018

2017 (1)

Revenue:
Subscriptions $ 722,699 $ 637,562 $ 1,434,220 $ 1,234,070
Training and services 100,048   85,793   202,057   166,081  
Total revenue 822,747   723,355   1,636,277   1,400,151  
 
Cost of revenue:
Subscriptions 51,931 46,324 104,104 89,957
Training and services 66,999   60,393   137,525   117,456  
Total cost of revenue 118,930   106,717   241,629   207,413  
 
Gross profit 703,817 616,638 1,394,648 1,192,738
 
Operating expense:
Sales and marketing 334,380 278,317 683,195 572,640
Research and development 166,308 141,809 332,814 278,972
General and administrative 68,573   61,722   131,927   116,592  
Total operating expense 569,261   481,848   1,147,936   968,204  
 
Income from operations 134,556 134,790 246,712 224,534
Interest income 7,855 4,612 15,689 8,605
Interest expense 4,808 6,081 11,127 12,166
Other expense, net (2,457 ) (1,260 )   (4,651 ) (1,846 )  
 
Income before provision for income taxes 135,146 132,061 246,623 219,127
Provision for income taxes 48,292   34,973   46,579   46,725  
Net income $ 86,854   $ 97,088   $ 200,044   $ 172,402  
 
Net income per share:
Basic $ 0.49 $ 0.55 $ 1.13 $ 0.97
Diluted $ 0.46 $ 0.53 $ 1.06 $ 0.94
Weighted average shares outstanding:
Basic 176,746 177,257 177,024 177,250
Diluted 186,936 183,021 188,061 182,460
 
 
(1)   As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

  August 31,   February 28,
2018

2018 (1)

ASSETS
Current assets:
Cash, cash equivalents and restricted cash $ 1,503,515 $ 1,724,132
Investments in debt and equity securities, short-term 264,945 318,358
Accounts receivable, net 516,008 806,744
Prepaid expenses 247,197 267,197
Other current assets 46,088   25,666  
Total current assets 2,577,753 3,142,097
 
Property and equipment, net 195,230 206,105
Goodwill 1,278,478 1,288,830
Identifiable intangibles, net 213,260 224,953
Investments in debt securities, long-term 389,402 430,442
Deferred tax assets, net 83,761 92,606
Other assets, net 68,984   89,460  
Total assets $ 4,806,868   $ 5,474,493  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 405,970 $ 427,139
Deferred revenue, short-term 1,683,503 1,853,719
Other current obligations 544 843
Convertible notes 4,435   23,806  
Total current liabilities 2,094,452 2,305,507
 
Deferred revenue, long-term 709,746 741,453
Convertible notes 512,095 744,194
Other long-term obligations 200,771 205,215
Stockholders’ equity:
Common stock 24 24
Additional paid-in capital 2,576,560 2,416,080
Retained earnings 1,820,124 1,619,688
Treasury stock, at cost (3,055,268 ) (2,525,072 )
Accumulated other comprehensive loss (51,636 ) (32,596 )  
Total stockholders’ equity 1,289,804   1,478,124  
Total liabilities and stockholders’ equity $ 4,806,868   $ 5,474,493  
 
 
(1)   Derived from audited financial statements except for line items adjusted by the retrospective application of ASC 606.
 

 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

  Three Months Ended   Six Months Ended
August 31, 2018  

August 31,
2017 (1)

August 31, 2018   August 31,
2017 (1)
Cash flows from operating activities:
Net income $ 86,854 $ 97,088 $ 200,044 $ 172,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,666 24,136 53,720 45,953
Amortization of debt discount and transaction costs 4,570 5,570 10,408 11,110
Repayments of convertible notes attributable to debt discount (32,563 ) (32,563 )
Deferred income taxes (293 ) (359 ) (3,688 ) 7,558
Share-based compensation expense 52,686 46,947 98,691 90,665
Net amortization of bond premium on debt securities available for sale 543 2,439 1,286 4,875
Other 2,553 571 3,650 1,532
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (22,049 ) 17,036 277,390 225,797
Other receivables 14,915 (949 ) (20,245 ) (20,346 )
Prepaid expenses 6,280 (11,793 ) 31,662 231
Accounts payable and accrued expenses 26,937 2,010 (1,705 ) (53,316 )
Deferred revenue (33,786 ) (40,575 ) (138,378 ) (86,292 )
Other (521 ) 775   (1,321 ) 599  
Net cash provided by operating activities 132,792   142,896   478,951   400,768  
 
Cash flows from investing activities:
Purchase of investment in debt securities available for sale (9,725 ) (109,669 ) (118,061 ) (259,193 )
Proceeds from maturities of investment in debt securities available for sale 106,050 105,303 193,054 217,344
Proceeds from sales of investment in debt securities available for sale 7,966 8,491 14,324
Proceeds from sales of strategic equity investments 1,300
Acquisition of businesses, net of cash acquired (83,965 ) (83,965 )
Purchase of developed software and other intangible assets (3,258 ) (7,671 ) (6,124 ) (9,445 )
Purchase of property and equipment (13,653 ) (25,781 ) (26,616 ) (51,681 )
Other   (189 ) (986 ) (189 )
Net cash provided by (used in) investing activities 87,380   (121,972 ) 51,058   (172,805 )
 
Cash flows from financing activities:
Proceeds from exercise of common stock options 189 862 1,064 3,830
Proceeds from employee stock purchase program 13,685 10,952 28,947 22,713
Payments related to net settlement of share-based compensation awards (17,638 ) (7,413 ) (94,732 ) (48,423 )
Purchase of treasury stock (250,035 ) (75,015 ) (400,054 ) (137,002 )
Payments on other borrowings (250 ) (418 ) (549 ) (861 )
Repayments of convertible notes attributable to principal (211,990 )   (237,943 )  
Net cash used in financing activities (466,039 ) (71,032 ) (703,267 ) (159,743 )
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash (19,098 ) 29,959   (47,359 ) 51,280  
Net (decrease) increase in cash, cash equivalents and restricted cash (264,965 ) (20,149 ) (220,617 ) 119,500
Cash, cash equivalents and restricted cash at beginning of the period 1,768,480   1,230,457   1,724,132   1,090,808  
Cash, cash equivalents and restricted cash at end of the period $ 1,503,515   $ 1,210,308   $ 1,503,515   $ 1,210,308  
 
 
(1)   As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

  Three Months Ended   Six Months Ended
August 31,   August 31, August 31,   August 31,
2018 2017 (1) 2018 2017 (1)
 
Reconciliation items included in Consolidated Statements of Operations:
 
Non-cash share-based compensation expense:
Cost of revenue $ 4,747 $ 4,261 $ 9,875 $ 8,209
Sales and marketing 22,824 20,817 42,344 41,430
Research and development 16,306 14,220 31,088 27,666
General and administrative 8,809   7,649   15,384   13,360  
Total share-based compensation expense $ 52,686   $ 46,947   $ 98,691   $ 90,665  
 
Amortization of intangible assets expense:
Cost of revenue $ 5,875 $ 4,326 $ 12,016 $ 8,162
Sales and marketing 1,400 1,583 2,762 3,042
Research and development 35 35 69 69
General and administrative 2,380   2,227   4,753   4,053  

Total amortization of intangible assets expense

$ 9,690   $ 8,171   $ 19,600   $ 15,326  
 
Total non-cash interest expense related to the debt discount $ 3,869   $ 4,890   $ 8,876   $ 9,757  
 
Transaction costs related to business combinations $ 107   $ 1,220   $ 118   $ 1,362  
 
Reconciliation of GAAP results to non-GAAP adjusted results:
 
GAAP net income $ 86,854 $ 97,088 $ 200,044 $ 172,402
GAAP provision for income taxes 48,292   34,973   46,579   46,725  
GAAP income before provision for income taxes $ 135,146 $ 132,061 $ 246,623 $ 219,127
 
Add: Non-cash share-based compensation expense 52,686 46,947 98,691 90,665
Add: Amortization of intangible assets expense 9,690 8,171 19,600 15,326
Add: Non-cash interest expense related to the debt discount 3,869 4,890 8,876 9,757
Add: Transaction costs related to business combinations 107   1,220   118   1,362  
Non-GAAP adjusted income before provision for income taxes $ 201,498 $ 193,289 $ 373,908 $ 336,237
Non-GAAP provision for income taxes (2) 44,915   54,848   84,216   93,550  
Non-GAAP adjusted net income (basic and diluted) $ 156,583   $ 138,441   $ 289,692   $ 242,687  
 
Non-GAAP adjusted diluted weighted average shares outstanding:
GAAP diluted weighted average shares outstanding 186,936 183,021 188,061 182,460
Dilution offset from convertible note hedge transactions (3,699 ) (2,706 )   (3,801 ) (2,189 )  
Non-GAAP diluted weighted average shares outstanding 183,237   180,315   184,260   180,271  
 
Non-GAAP adjusted net income per share:
Basic $ 0.89 $ 0.78 $ 1.64 $ 1.37
Diluted $ 0.85 $ 0.77 $ 1.57 $ 1.35
 

(1) As adjusted to reflect the impact of the retrospective application of ASC 606.

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

 
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
2018 2017 (1)   2018 2017 (1)  
(2) Non-GAAP provision for income taxes:
Non-GAAP adjusted income before provision for income taxes $ 201,498 $ 193,289 $ 373,908 $ 336,237
GAAP estimated annual effective tax rate 24.1 % 27.6 %   23.4 % 27.3 %  
Provision for income taxes on non-GAAP adjusted income before adjustments $ 48,702 $ 53,483 $ 87,494 $ 91,793
Certain non-deductible share-based compensation (4,973 ) (4,973 )
Discrete tax expense, excluding discrete benefits related to share-based compensation 1,186   1,365   1,695   1,757  
Provision for income taxes on non-GAAP adjusted income, excluding impact from certain non-deductible share-based compensation and discrete tax benefits related to share-based compensation $ 44,915   $ 54,848   $ 84,216   $ 93,550  
 
GAAP gross profit $ 703,817 $ 616,638 $ 1,394,648 $ 1,192,738
Add: Non-cash share-based compensation expense 4,747 4,261 9,875 8,209
Add: Amortization of intangible assets expense 5,875   4,326   12,016   8,162  
Non-GAAP gross profit $ 714,439   $ 625,225   $ 1,416,539   $ 1,209,109  
 
Non-GAAP gross margin 86.8 % 86.4 % 86.6 % 86.4 %
 
GAAP operating expenses $ 569,261 $ 481,848 $ 1,147,936 $ 968,204
Deduct: Non-cash share-based compensation expense (47,939 ) (42,686 ) (88,816 ) (82,456 )
Deduct: Amortization of intangible assets expense (3,815 ) (3,845 ) (7,584 ) (7,164 )
Deduct: Transaction costs related to business combinations (107 ) (1,220 )   (118 ) (1,362 )  
Non-GAAP adjusted operating expenses $ 517,400   $ 434,097   $ 1,051,418   $ 877,222  
 
GAAP operating income $ 134,556 $ 134,790 $ 246,712 $ 224,534
Add: Non-cash share-based compensation expense 52,686 46,947 98,691 90,665
Add: Amortization of intangible assets expense 9,690 8,171 19,600 15,326
Add: Transaction costs related to business combinations 107   1,220   118   1,362  
Non-GAAP adjusted operating income $ 197,039   $ 191,128   $ 365,121   $ 331,887  
 
Non-GAAP adjusted operating margin 23.9 % 26.4 % 22.3 % 23.7 %
 
GAAP net cash provided by operating activities $ 132,792 $ 142,896 $ 478,951 $ 400,768
Repayments of convertible notes attributable to debt discount 32,563         32,563      
Non-GAAP net cash provided by operating activities $ 165,355   $ 142,896   $ 511,514   $ 400,768  
 

(1) As adjusted to reflect the impact of the retrospective application of ASC 606.

 

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

 
  Three Months Ended
August 31,   August 31,   Year-Over-Year
2018 2017 Growth Rate
Subscription and services revenue:
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 526,701 $ 487,447 8.1 %
Adjustment for currency impact 1,431    
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 528,132 $ 487,447 8.3 %
 
Application Development-related and other emerging technology offerings $ 195,998 $ 150,115 30.6 %
Adjustment for currency impact 1,136    
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 197,134 $ 150,115 31.3 %
 
GAAP subscription revenue $ 722,699 $ 637,562 13.4 %
Adjustment for currency impact 2,567    
Non-GAAP subscription revenue on a constant currency basis $ 725,266 $ 637,562 13.8 %
 
GAAP training and services revenue $ 100,048 $ 85,793 16.6 %
Adjustment for currency impact 1,615    
Non-GAAP training and services revenue on a constant currency basis $ 101,663 $ 85,793 18.5 %
 
GAAP total revenue $ 822,747 $ 723,355 13.7 %
Adjustment for currency impact 4,182    
Non-GAAP total revenue on a constant currency basis $ 826,929   $ 723,355   14.3 %
 
Six Months Ended
August 31, August 31, Year-Over-Year
2018 2017 Growth Rate
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 1,049,103 $ 945,408 11.0 %
Adjustment for currency impact (12,569 )  
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 1,036,534 $ 945,408 9.6 %
 
Application Development-related and other emerging technology offerings $ 385,117 $ 288,662 33.4 %
Adjustment for currency impact (5,082 )  
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 380,035 $ 288,662 31.7 %
 
GAAP subscription revenue $ 1,434,220 $ 1,234,070 16.2 %
Adjustment for currency impact (17,651 )  
Non-GAAP subscription revenue on a constant currency basis $ 1,416,569 $ 1,234,070 14.8 %
 
GAAP training and services revenue $ 202,057 $ 166,081 21.7 %
Adjustment for currency impact (757 )  
Non-GAAP training and services revenue on a constant currency basis $ 201,300 $ 166,081 21.2 %
 
GAAP total revenue $ 1,636,277 $ 1,400,151 16.9 %
Adjustment for currency impact (18,408 )  
Non-GAAP total revenue on a constant currency basis $ 1,617,869   $ 1,400,151   15.5 %
 

 

RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands)

 

Change in deferred revenue balances:

       
      Deferred Revenue
Current Long-Term Total
Balance at August 31, 2017 $ 1,471,434 $ 581,077 $ 2,052,511
Constant currency change in deferred revenue 236,962 143,967 380,929
Impact from foreign currency translation (24,893 ) (15,298 ) (40,191 )
Balance at August 31, 2018 $ 1,683,503   $ 709,746   $ 2,393,249  
 
Year-over-year growth rate 14.4 % 22.1 % 16.6 %
Year-over-year growth rate on a constant currency basis 16.1 % 24.8 % 18.6 %
 
       
Revenue growth by geographical segment:
    Americas     EMEA APAC Consolidated
Total revenue for the three months ended August 31, 2018 $ 514,323 $ 189,303 $ 119,121 $ 822,747
Adjustment for currency impact 4,468   (1,776 ) 1,490   4,182  
Total revenue on a constant currency basis for the three months ended August 31, 2018 $ 518,791   $ 187,527   $ 120,611   $ 826,929  
 
Total revenue for the three months ended August 31, 2017 $ 463,359   $ 159,722   $ 100,274   $ 723,355  
 
Year-over-year growth rate 11.0 % 18.5 % 18.8 % 13.7 %
Year-over-year growth rate on a constant currency basis 12.0 % 17.4 % 20.3 % 14.3 %
 
Total revenue for the six months ended August 31, 2018 $ 1,014,629 $ 384,451 $ 237,197 $ 1,636,277
Adjustment for currency impact 6,477   (22,880 ) (2,005 ) (18,408 )
Total revenue on a constant currency basis for the six months ended August 31, 2018 $ 1,021,106   $ 361,571   $ 235,192   $ 1,617,869  
 
Total revenue for the six months ended August 31, 2017 $ 901,739   $ 303,392   $ 195,020   $ 1,400,151  
 
Year-over-year growth rate 12.5 % 26.7 % 21.6 % 16.9 %
Year-over-year growth rate on a constant currency basis 13.2 % 19.2 % 20.6 % 15.5 %
 

 

RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)
(In thousands - except per share amounts)
 
The primary impact of adopting ASC 606 related to the deferral of incremental commission and other costs of obtaining contracts with customers. Certain unaudited financial statement information as adjusted to reflect the Company’s adoption of ASC 606 is set forth below. The adjustments resulting from ASC 606 are reflected in presentations of both GAAP and non-GAAP financial information.
 

Consolidated balance sheets:

     
February 28, 2018
As Reported (1)     Adjustments     As Adjusted
Prepaid expenses $ 260,092 $ 7,105 $ 267,197
Deferred tax assets, net $ 93,300 $ (694 ) $ 92,606
Other assets, net $ 87,924 $ 1,536 $ 89,460
Accounts payable and accrued expenses $ 427,086 $ 53 $ 427,139
Retained earnings $ 1,611,794 $ 7,894 $ 1,619,688
 
(1) Derived from audited financial statements.
 

Consolidated statements of operations:

     
Three Months Ended May 31, 2017
As Reported     Adjustments     As Adjusted
Operating expense:
Sales and marketing $ 296,459 $ (2,136 ) $ 294,323
Net income $ 73,190 $ 2,124 $ 75,314
Net income per share:
Basic $ 0.41 $ 0.01 $ 0.42
Diluted $ 0.40 $ 0.01 $ 0.41
 
     
Three Months Ended August 31, 2017
As Reported     Adjustments     As Adjusted
Operating expense:
Sales and marketing $ 278,548 $ (231 ) $ 278,317
Net income $ 96,859 $ 229 $ 97,088
Net income per share:
Basic $ 0.55 $ $ 0.55
Diluted $ 0.53 $ $ 0.53
 
     
Three Months Ended November 30, 2017
As Reported     Adjustments     As Adjusted
Operating expense:
Sales and marketing $ 308,388 $ (305 ) $ 308,083
Net income $ 101,306 $ 303 $ 101,609
Net income per share:
Basic $ 0.57 $ $ 0.57
Diluted $ 0.54 $ 0.01 $ 0.55
 

             
RED HAT, INC.
SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands - except per share amounts)

 
Three Months Ended February 28, 2018
As Reported Adjustments As Adjusted
Operating expense:
Sales and marketing $ 315,181 $ (618 ) $ 314,563
Net loss $ (12,552 ) $ 392 $ (12,160 )
Net loss per share:
Basic $ (0.07 ) $ $ (0.07 )
Diluted $ (0.07 ) $ $ (0.07 )
 
     
Twelve Months Ended February 28, 2018
As Reported (1)     Adjustments     As Adjusted
Operating expense:
Sales and marketing $ 1,198,576 $ (3,290 ) $ 1,195,286
Net income $ 258,803 $ 3,048 $ 261,851
Net income per share:
Basic $ 1.46 $ 0.02 $ 1.48
Diluted $ 1.40 $ 0.02 $ 1.42
 
(1) Derived from audited financial statements.
 

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

Source: Red Hat, Inc.