RHT Red Hat

• First quarter total revenue of $934 million, up 15% year-over-year in USD, or 18% in constant currency
• First quarter Application Development-related and other emerging technology subscription revenue of $235 million, up 24% year-over-year in USD, or 29% in constant currency
• First quarter training and services revenue of $119 million, up 17% year-over-year in USD, or 22% in constant currency
• Quarter-end deferred revenue balance of $2.8 billion, up 14% year-over-year in USD, or 17% in constant currency
• First quarter GAAP operating cash flow of $460 million, up 33% year-over-year

 

Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the first quarter of fiscal year 2020 ended May 31, 2019.

“We continue to unlock the potential of developers and enterprises, enabling our customers to succeed in building next generation IT infrastructure and applications,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Customer interest in Red Hat technologies is robust, evidenced by a record attendance of nearly 9,000 attendees at Red Hat Summit, our marquee user event. At the event, we announced the general availability of Red Hat Enterprise Linux 8 and OpenShift 4, building on our track record of delivering innovation that creates business value for our customers. Customer excitement was evident at the event and further reflected in the quarter, where we added more than 90 new OpenShift customers.”

“The first quarter was a strong start to FY20, with double digit growth across a number of our financial metrics, including 15% total revenue growth year-over-year in U.S. dollars, or 18% measured in constant currency; and 24% in U. S. dollars, or 29% in constant currency, growth year-over-year in our Application Development-related and other emerging technology revenue,” said Eric Shander, Executive Vice President and Chief Financial Officer. “Our large deal momentum remained strong, as we doubled the number of deals over $5 million and saw 15% growth in the number of deals over $1 million from the year-ago quarter. Many of these deals contained emerging technologies, including an OpenStack deal for over $5 million and our largest ever storage and hyperconverged deal for over $15 million. The breadth of our success demonstrates that customers can realize significant value across our product portfolio.”

Revenue: Total revenue for the quarter was $934 million, up 15% year-over-year, or 18% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $815 million, up 15% year-over-year, or 18% measured in constant currency. Subscription revenue in the quarter was 87% of total revenue. Services revenue for the quarter was $119 million, up 17% year-over-year, or 22% measured in constant currency.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $580 million, an increase of 11% year-over-year, or 14% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $235 million, an increase of 24% year-over-year, or 29% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $132 million, up 18% 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 adjusted operating income for the first quarter was $202 million, up 20% year-over-year. For the first quarter, GAAP operating margin was 14.1% and non-GAAP adjusted operating margin was 21.7%. Non-GAAP references in this release are detailed in the tables below.

Net Income: GAAP net income for the quarter was $141 million, or $0.76 diluted earnings per share (“EPS”), compared with GAAP net income of $113 million, or $0.59 diluted earnings per share, in the year-ago quarter. Included in net income for the quarter is a net tax benefit of $13.2 million primarily related to an intra-entity transfer of assets.

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 adjusted net income for the quarter was $186 million, or $1.00 diluted EPS, as compared to $133 million, or $0.72 diluted EPS, in the year-ago quarter. Non-GAAP adjusted diluted weighted average shares outstanding excludes dilution that is expected to be offset by our convertible note hedge transactions.

Cash: GAAP operating cash flow was $460 million for the first quarter, up 33% on a year-over-year basis. Non-GAAP operating cash flow adjusts for the impact of our 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 first quarter that is attributable to debt discount to be classified as operating cash flow. Non-GAAP operating cash flow, which excludes this impact of approximately $14 million, was $474 million, up 37% on a year-over-year basis compared to non-GAAP operating cash flow. Total convertible note repayments were $615 million as of May 31, 2019, with a remaining principal value of $190 million. Total cash, cash equivalents and investments as of May 31, 2019 was $2.7 billion.

Deferred revenue: At the end of the first quarter, the Company’s total deferred revenue balance was $2.8 billion, an increase of 14% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $57 million year-over-year. On a constant currency basis, total deferred revenue would have increased 17% year-over-year.

Due to the pending transaction with International Business Machines Corporation, Red Hat will not be hosting a conference call for its first quarter of fiscal 2020 business results and will not be providing an outlook for its fiscal year 2020.

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 enterprise open source software solutions, using a community-powered approach to deliver reliable and high-performing Linux, hybrid cloud, container, and Kubernetes technologies. Red Hat helps customers integrate new and existing IT applications, develop cloud-native applications, standardize on our industry-leading operating system, and automate, secure, and manage complex environments. Award-winning support, training, and consulting services make Red Hat a trusted adviser to the Fortune 500. As a strategic partner to cloud providers, system integrators, application vendors, customers, and open source communities, Red Hat can help organizations prepare for the digital future. Learn more at 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 our pending merger with International Business Machines Corporation, 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; changes in and a dependence on key personnel; 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; 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 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, the Red Hat logo, Red Hat Enterprise Linux and OpenShift 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. The OpenStack word mark is a trademark or registered trademark of OpenStack Foundation in the U.S. and other countries, and is used with the OpenStack Foundation’s permission. Red Hat, Inc. is not affiliated with, endorsed by, or sponsored by the OpenStack Foundation or the OpenStack community.

RED HAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands - except per share amounts)

 

 

Three Months Ended

 

May 31,

 

May 31,

 

2019

 

2018

Revenue:

 

 

 

Subscriptions

$

814,952

 

 

$

711,521

 

Training and services

119,159

 

 

102,009

 

Total revenue

934,111

 

 

813,530

 

 

 

 

 

Cost of revenue:

 

 

 

Subscriptions

61,899

 

 

52,173

 

Training and services

82,384

 

 

70,526

 

Total cost of revenue

144,283

 

 

122,699

 

 

 

 

 

Gross profit

789,828

 

 

690,831

 

 

 

 

 

Operating expense:

 

 

 

Sales and marketing

394,201

 

 

348,815

 

Research and development

182,961

 

 

166,506

 

General and administrative

80,548

 

 

63,354

 

Total operating expense

657,710

 

 

578,675

 

 

 

 

 

Income from operations

132,118

 

 

112,156

 

Interest income

9,254

 

 

7,834

 

Interest expense

1,959

 

 

6,319

 

Other expense, net

766

 

 

2,194

 

 

 

 

 

Income before provision for income taxes

138,647

 

 

111,477

 

Benefit for income taxes

(2,473

)

 

(1,713

)

Net income

$

141,120

 

 

$

113,190

 

 

 

 

 

Net income per share:

 

 

 

Basic

$

0.80

 

 

$

0.64

 

Diluted

$

0.76

 

 

$

0.59

 

Weighted average shares outstanding:

 

 

 

Basic

177,400

 

 

177,302

 

Diluted

186,635

 

 

190,739

 

RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

May 31, 2019

 

February 28, 2019 (1)

ASSETS

 

 

 

Current assets:

 

 

 

Cash, cash equivalents and restricted cash

$

2,295,396

 

 

$

1,883,096

 

Investments in debt securities, short-term

177,625

 

 

293,361

 

Accounts receivable, net

529,115

 

 

980,188

 

Prepaid expenses

250,571

 

 

282,507

 

Other current assets

36,743

 

 

24,504

 

Total current assets

3,289,450

 

 

3,463,656

 

 

 

 

 

Property and equipment, net

200,015

 

 

198,969

 

Operating right-of-use assets, net (2)

224,371

 

 

—

 

Goodwill

1,273,494

 

 

1,276,853

 

Identifiable intangibles, net

198,914

 

 

206,083

 

Investments in debt securities, long-term

188,172

 

 

248,512

 

Deferred tax assets, net

119,128

 

 

112,568

 

Other assets, net

80,395

 

 

81,648

 

Total assets

$

5,573,939

 

 

$

5,588,289

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

458,456

 

 

$

491,259

 

Deferred revenue, short-term

2,016,488

 

 

2,161,206

 

Other current obligations

256

 

 

282

 

Convertible notes

188,553

 

 

69,827

 

Total current liabilities

2,663,753

 

 

2,722,574

 

 

 

 

 

Deferred revenue, long-term

781,043

 

 

821,218

 

Convertible notes

—

 

 

231,540

 

Operating lease liabilities (2)

188,133

 

 

—

 

Other long-term obligations

183,074

 

 

199,025

 

Stockholders’ equity:

 

 

 

Common stock

25

 

 

24

 

Additional paid-in capital

2,853,105

 

 

2,791,895

 

Retained earnings

2,195,189

 

 

2,054,069

 

Treasury stock, at cost

(3,242,725

)

 

(3,189,434

)

Accumulated other comprehensive loss

(47,658

)

 

(42,622

)

Total stockholders’ equity

1,757,936

 

 

1,613,932

 

Total liabilities and stockholders’ equity

$

5,573,939

 

 

$

5,588,289

 

 

(1) Derived from audited financial statements.

(2) Effective March 1, 2019, the Company adopted Accounting Standard Update 2016-02, Leases (Topic 842).

RED HAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended

 

May 31, 2019

 

May 31, 2018

Cash flows from operating activities:

 

 

 

Net income

$

141,120

 

 

$

113,190

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

36,754

 

 

27,054

 

Amortization of debt discount and transaction costs

1,885

 

 

5,838

 

Repayments of convertible notes attributable to debt discount

(13,981

)

 

—

 

Share-based compensation expense

50,168

 

 

46,005

 

Net amortization of bond premium on debt securities available for sale

271

 

 

743

 

Other

(872

)

 

(2,298

)

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

445,186

 

 

299,439

 

Other receivables

(12,278

)

 

(35,160

)

Prepaid expenses

28,844

 

 

25,382

 

Accounts payable and accrued expenses

(58,271

)

 

(28,642

)

Deferred revenue

(158,729

)

 

(104,592

)

Other

(143

)

 

(800

)

Net cash provided by operating activities

459,954

 

 

346,159

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchase of investment in debt securities available for sale

—

 

 

(108,336

)

Proceeds from maturities of investment in debt securities available for sale

110,431

 

 

87,004

 

Proceeds from sales of investment in debt securities available for sale

64,899

 

 

525

 

Proceeds from sales of strategic equity investments

—

 

 

1,300

 

Purchase of developed software and other intangible assets

(4,134

)

 

(2,866

)

Payments for property and equipment

(23,513

)

 

(12,963

)

Other

(124

)

 

(986

)

Net cash provided by (used in) investing activities

147,559

 

 

(36,322

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from exercise of common stock options

369

 

 

875

 

Proceeds from employee stock purchase program

7,501

 

 

15,262

 

Payments related to net settlement of share-based compensation awards

(81,274

)

 

(77,094

)

Purchase of treasury stock

—

 

 

(150,019

)

Proceeds (payments) on other borrowings, net

26

 

 

(299

)

Repayments of convertible notes attributable to principal

(102,163

)

 

(25,953

)

Net cash used in financing activities

(175,541

)

 

(237,228

)

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

(19,672

)

 

(28,261

)

Net increase in cash, cash equivalents and restricted cash

412,300

 

 

44,348

 

Cash, cash equivalents and restricted cash at beginning of the period

1,883,096

 

 

1,724,132

 

Cash, cash equivalents and restricted cash at end of the period

$

2,295,396

 

 

$

1,768,480

 

 

RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands - except per share amounts)

 

Three Months Ended

 

May 31,

 

May 31,

 

2019

 

2018

 

 

 

 

Reconciliation items included in Consolidated Statements of Operations:

 

 

 

 

 

 

 

Non-cash share-based compensation expense:

 

 

 

Cost of revenue

$

4,945

 

 

$

5,128

 

Sales and marketing

21,904

 

 

19,520

 

Research and development

16,002

 

 

14,782

 

General and administrative

7,317

 

 

6,575

 

Total share-based compensation expense

$

50,168

 

 

$

46,005

 

 

 

 

 

Amortization of intangible assets expense:

 

 

 

Cost of revenue

$

6,316

 

 

$

6,141

 

Sales and marketing

1,194

 

 

1,362

 

Research and development

34

 

 

34

 

General and administrative

2,517

 

 

2,373

 

Total amortization of intangible assets expense

$

10,061

 

 

$

9,910

 

 

 

 

 

Total non-cash interest expense related to the debt discount

$

1,501

 

 

$

5,007

 

 

 

 

 

Transaction costs related to business combinations

$

9,905

 

 

$

11

 

 

 

 

 

Reconciliation of GAAP results to non-GAAP adjusted results:

 

 

 

 

 

 

 

GAAP net income

$

141,120

 

 

$

113,190

 

GAAP provision for income taxes

(2,473

)

 

(1,713

)

GAAP income before provision for income taxes

$

138,647

 

 

$

111,477

 

 

 

 

 

Add: Non-cash share-based compensation expense

50,168

 

 

46,005

 

Add: Amortization of intangible assets expense

10,061

 

 

9,910

 

Add: Non-cash interest expense related to the debt discount

1,501

 

 

5,007

 

Add: Transaction costs related to business combinations

9,905

 

 

11

 

Non-GAAP adjusted income before provision for income taxes

$

210,282

 

 

$

172,410

 

Non-GAAP provision for income taxes (1)

24,307

 

 

39,302

 

Non-GAAP adjusted net income (basic and diluted)

$

185,975

 

 

$

133,108

 

 

 

 

 

Non-GAAP adjusted diluted weighted average shares outstanding:

 

 

 

GAAP diluted weighted average shares outstanding

186,635

 

 

190,739

 

Dilution offset from convertible note hedge transactions

(1,554

)

 

(5,686

)

Non-GAAP diluted weighted average shares outstanding

185,081

 

 

185,053

 

 

 

 

 

Non-GAAP adjusted net income per share:

 

 

 

Basic

$

1.05

 

 

$

0.75

 

Diluted

$

1.00

 

 

$

0.72

 

RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

 

 

 

 

 

Three Months Ended

 

May 31,

 

May 31,

 

2019

 

2018

(1) Non-GAAP provision for income taxes:

 

 

 

Non-GAAP adjusted income before provision for income taxes

$

210,282

 

 

$

172,410

 

GAAP estimated annual effective tax rate

19.0

%

 

22.5

%

Provision for income taxes on non-GAAP adjusted income before adjustments

$

39,954

 

 

$

38,792

 

Certain non-deductible share-based compensation

(1,864

)

 

—

 

Non-deductible merger related costs

(591

)

 

—

 

Discrete tax (benefit) expense, other

(13,192

)

 

510

 

Provision for income taxes on non-GAAP adjusted income, excluding impact from certain non-deductible share-based compensation and non-deductible merger related costs

$

24,307

 

 

$

39,302

 

 

 

 

 

GAAP gross profit

$

789,828

 

 

$

690,831

 

Add: Non-cash share-based compensation expense

4,945

 

 

5,128

 

Add: Amortization of intangible assets expense

6,316

 

 

6,141

 

Non-GAAP gross profit

$

801,089

 

 

$

702,100

 

 

 

 

 

Non-GAAP gross margin

85.8

%

 

86.3

%

 

 

 

 

GAAP operating expenses

$

657,710

 

 

$

578,675

 

Deduct: Non-cash share-based compensation expense

(45,223

)

 

(40,877

)

Deduct: Amortization of intangible assets expense

(3,745

)

 

(3,769

)

Deduct: Transaction costs related to business combinations

(9,905

)

 

(11

)

Non-GAAP adjusted operating expenses

$

598,837

 

 

$

534,018

 

 

 

 

 

GAAP operating income

$

132,118

 

 

$

112,156

 

Add: Non-cash share-based compensation expense

50,168

 

 

46,005

 

Add: Amortization of intangible assets expense

10,061

 

 

9,910

 

Add: Transaction costs related to business combinations

9,905

 

 

11

 

Non-GAAP adjusted operating income

$

202,252

 

 

$

168,082

 

 

 

 

 

Non-GAAP adjusted operating margin

21.7

%

 

20.7

%

 

 

 

 

GAAP net cash provided by operating activities

$

459,954

 

 

$

346,159

 

Repayments of convertible notes attributable to debt discount

13,981

 

 

—

 

Non-GAAP net cash provided by operating activities

$

473,935

 

 

$

346,159

 

RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

Three Months Ended

 

May 31,

 

May 31,

 

Year-Over-Year

 

2019

 

2018

 

Growth Rate

Subscription and services revenue:

 

 

 

 

 

GAAP subscription revenue by offering type:

 

 

 

 

 

Infrastructure-related offerings

$

580,306

 

 

$

522,402

 

 

11.1%

Adjustment for currency impact

15,207

 

 

—

 

 

 

Non-GAAP Infrastructure-related subscription revenue on a constant currency basis

$

595,513

 

 

$

522,402

 

 

14.0%

 

 

 

 

 

 

Application Development-related and other emerging technology offerings

$

234,646

 

 

$

189,119

 

 

24.1%

Adjustment for currency impact

8,903

 

 

—

 

 

 

Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis

$

243,549

 

 

$

189,119

 

 

28.8%

 

 

 

 

 

 

GAAP subscription revenue

$

814,952

 

 

$

711,521

 

 

14.5%

Adjustment for currency impact

24,110

 

 

—

 

 

 

Non-GAAP subscription revenue on a constant currency basis

$

839,062

 

 

$

711,521

 

 

17.9%

 

 

 

 

 

 

GAAP training and services revenue

$

119,159

 

 

$

102,009

 

 

16.8%

Adjustment for currency impact

5,240

 

 

—

 

 

 

Non-GAAP training and services revenue on a constant currency basis

$

124,399

 

 

$

102,009

 

 

21.9%

 

 

 

 

 

 

GAAP total revenue

$

934,111

 

 

$

813,530

 

 

14.8%

Adjustment for currency impact

29,350

 

 

—

 

 

 

Non-GAAP total revenue on a constant currency basis

$

963,461

 

 

$

813,530

 

 

18.4%

RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands)

Change in deferred revenue balances:

 

Deferred Revenue

 

Current

 

Long-Term

 

Total

Balance at May 31, 2018

$

1,721,300

 

 

$

723,207

 

 

$

2,444,507

 

Constant currency change in deferred revenue

332,502

 

 

77,143

 

 

409,645

 

Impact from foreign currency translation

(37,314

)

 

(19,307

)

 

(56,621

)

Balance at May 31, 2019

$

2,016,488

 

 

$

781,043

 

 

$

2,797,531

 

 

 

 

 

 

 

Year-over-year growth rate

17.1

%

 

8.0

%

 

14.4

%

Year-over-year growth rate on a constant currency basis

19.3

%

 

10.7

%

 

16.8

%

 

 

 

 

 

 

Revenue growth by geographical segment:

 

Americas

 

EMEA

 

APAC

 

Consolidated

Total revenue for the three months ended May 31, 2019

$

582,290

 

 

$

216,951

 

 

$

134,870

 

 

$

934,111

 

Adjustment for currency impact

5,786

 

 

17,523

 

 

6,041

 

 

29,350

 

Total revenue on a constant currency basis for the three months ended May 31, 2019

$

588,076

 

 

$

234,474

 

 

$

140,911

 

 

$

963,461

 

 

 

 

 

 

 

 

 

Total revenue for the three months ended May 31, 2018

$

500,306

 

 

$

195,148

 

 

$

118,076

 

 

$

813,530

 

 

 

 

 

 

 

 

 

Year-over-year growth rate

16.4

%

 

11.2

%

 

14.2

%

 

14.8

%

Year-over-year growth rate on a constant currency basis

17.5

%

 

20.2

%

 

19.3

%

 

18.4

%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190620005639/en/

Media Contact: Stephanie Wonderlick Red Hat, Inc. (571) 421-8169 swonderl@redhat.com

Investor Relations: Kristen Zimmer Red Hat, Inc. kdemaria@redhat.com