EX-99 3 a4537702ex991.txt EXHIBIT 99.1 Exhibit 99.1 Red Hat Delivers Record Revenue, Cash Flows from Operations, and Operating Income in Third Quarter RALEIGH, N.C.--(BUSINESS WIRE)--Dec. 18, 2003-- Growth in Enterprise Subscription Volumes Accelerates to 33,000 New Subscriptions, Drives 40% Sequential Growth in Deferred Revenue Red Hat, Inc. (NASDAQ: RHAT), the world's premier open source and Linux provider, today reported financial results for its third quarter of fiscal year 2004. In the third quarter of fiscal 2004, Red Hat reported revenue of $33.1 million, a sequential increase of 15% compared to $28.8 million in the second quarter of fiscal 2004, and a year-over-year increase of 36%. The company also reported net income of $4.1 million, or $0.02 per share. This compares to a net income of $3.3 million, or $0.02 per share, in the prior quarter, and a net income of $214,000, or break-even per share, in the same quarter a year ago. The company generated $12.0 million, or $0.07 per share, in positive cash flow from operations during the second quarter, bringing positive cash flows from operations to $27.9 million for the nine months ended November 30, 2003. The company ended the third quarter with a cash and investments balance of $329 million, a sequential increase of $22 million and a year-over-year increase of $42 million. The company reported a net operating profit of $1.5 million, compared to a net operating profit of $240,000 in the prior quarter and a net operating loss of $2.9 million in the third quarter of the prior year. Excluding stock-based compensation and amortization of intangibles, operating margin was 6.2% in the quarter, up from 2.9% in the previous quarter. Highlights for the third quarter include: Third quarter sales of annual subscriptions for the Red Hat Enterprise Linux family of technologies increased sequentially by 7,000 subscriptions, or 27%, to approximately 33,000 subscriptions. Renewal rates for Red Hat Enterprise Linux approximated 90% for the second consecutive quarter. Deferred revenue increased 40% sequentially, to $42.3 million. Gross margins remained strong, with blended gross margins at 72%, and gross margins of Enterprise subscriptions remaining constant at 88%."Our revenue growth accelerated in the third quarter, which translated to increased operating income and cash flows from operations," said Kevin Thompson, Red Hat Executive Vice President and Chief Financial Officer. "The subscription revenue model has developed sufficient maturity to enable us to drive consistent sequential increases in quarterly revenue." About Red Hat, Inc. Red Hat is the world's premier open source and Linux provider. Red Hat is headquartered in Raleigh, N.C. and has offices worldwide. For investor inquiries, contact Gabriel Szulik at Red Hat, (919) 754-3700, ext. 44439. More information about Red Hat is available at www.redhat. com. FORWARD-LOOKING STATEMENTS Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov. RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands - except per share amounts) Three Months Ended Nine Months Ended ------------------------------ ------------------- Nov. 30, Aug. 31, Nov. 30, Nov. 30, Nov. 30, 2003 2003 2002 2003 2002 ------------------------------ -------- -------- (Unaudited) (Unaudited) Subscription and services revenue: Subscription: Enterprise technologies $17,779 $14,918 $6,891 $44,986 $19,284 Retail 3,727 3,121 5,557 11,310 12,364 Embedded 466 490 709 1,602 2,511 -------- -------- -------- -------- -------- Total subscription revenue 21,972 18,529 13,157 57,898 34,159 -------- -------- -------- -------- -------- Services: Enterprise technologies 9,887 9,147 10,071 28,073 27,831 Embedded development services 1,229 1,173 1,050 3,148 3,044 -------- -------- -------- -------- -------- Total services revenue 11,116 10,320 11,121 31,221 30,875 -------- -------- -------- -------- -------- Total subscription and services revenue 33,088 28,849 24,278 89,119 65,034 -------- -------- -------- -------- -------- Cost of subscription and services revenue: Subscription: Enterprise technologies and retail 2,684 2,220 2,285 7,878 6,083 Embedded 69 90 124 288 374 -------- -------- -------- -------- -------- Total cost of subscription revenue 2,753 2,310 2,409 8,166 6,457 -------- -------- -------- -------- -------- Services: Enterprise technologies 5,356 4,976 4,911 15,197 13,659 Embedded development services 1,003 695 868 2,482 2,960 -------- -------- -------- -------- -------- Total cost of services revenue 6,359 5,671 5,779 17,679 16,619 -------- -------- -------- -------- -------- Total cost of subscription and services revenue 9,112 7,981 8,188 25,845 23,076 -------- -------- -------- -------- -------- Gross profit enterprise technologies and retail 23,353 19,990 15,323 61,294 39,737 Gross profit embedded 623 878 767 1,980 2,221 -------- -------- -------- -------- -------- Total gross profit 23,976 20,868 16,090 63,274 41,958 Operating expense: Sales and marketing 10,064 9,570 8,147 28,386 24,534 Research and development 7,002 6,104 5,422 18,885 15,026 General and administrative 4,873 4,356 3,995 13,288 11,050 Mergers and acquisitions and other - - - - 2,268(a) Stock-based compensation and amortization of intangibles 537(b) 598(b) 1,420(b) 2,037(b) 3885(b) -------- -------- -------- -------- -------- Total operating expense 22,476 20,628 18,984 62,596 56,763 -------- -------- -------- -------- -------- Gain (loss) from operations before extraordinary item 1,500 240 (2,894) 678 (14,805) Other income (expense), net 2,645 3,097 3,108 8,323 8,741 -------- -------- -------- -------- -------- Net income (loss) before extraordinary item 4,145 3,337 214 9,001 (6,064) -------- -------- -------- -------- -------- Extraordinary item-loss on disposal of discontinued operations - - - - (261) -------- -------- -------- -------- -------- Net income (loss) $4,145 $3,337 $214 $9,001 ($6,325) ======== ======== ======== ======== ======== Basic income (loss) per common share Net income (loss) before extraordinary item $0.02 $0.02 $0.00 $0.05 ($0.04) Extraordinary item-loss on disposal of discontinued operations - - - - (0.00) -------- -------- -------- -------- -------- Net income (loss) $0.02 $0.02 $0.00 $0.05 ($0.04) ======== ======== ======== ======== ======== Diluted income (loss) per common share Net income (loss) before extraordinary item $0.02 $0.02 $0.00 $0.05 ($0.04) Extraordinary item-loss on disposal of discontinued operations - - - - (0.00) -------- -------- -------- -------- -------- Net income (loss) $0.02 $0.02 $0.00 $0.05 ($0.04) ======== ======== ======== ======== ======== Weighted average shares outstanding: Basic 173,996 172,127 170,183 172,417 169,995 Diluted 184,210 182,377 178,268 185,641 169,995 (a) This amount represents costs related to integration of acquisitions, primarily severance and duplicate facilities, that are not part of recurring operations and a restructuring charge representing severance costs associated with the completion of the restructuring of our embedded business which began in Q4 of fiscal 2002. (b) This amount represents amortization of deferred compensation which was primarily related to acquisitions made in prior periods and amortization of intangible assets related to acquisitions made by the Company. RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS Nov. 30 Feb. 28 2003 2003 --------- --------- Assets: Cash and investments in debt securities $328,809 $292,340 Accounts receivable, net 30,292 17,429 Estimated earnings in excess of billings 5,364 6,978 Inventory 614 799 Prepaid expenses and other assets 8,971 8,993 Property and equipment, net 24,745 22,972 Goodwill and intangibles, net 41,048 40,828 --------- --------- Total assets $439,843 $390,339 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $4,628 $5,502 Accrued expenses 8,559 7,614 Deferred revenue 42,270 17,779 Deferred lease credits 5,399 5,382 Other liabilities 16,703 17,641 --------- --------- Total liabilities 77,559 53,918 Commitments and contingencies - - Stockholders' equity: Noncontrolling interest in subsidiary 292 115 Preferred stock - - Common stock 18 17 Additional paid-in capital 647,301 630,798 Deferred compensation (562) (2,403) Accumulated deficit (281,403) (290,404) Treasury stock, at cost (7,436) (7,436) Accumulated other comprehensive income 4,074 5,734 --------- --------- Total stockholders' equity 362,284 336,421 --------- --------- Total liabilities and stockholders' equity $439,843 $390,339 ========= ========= Note: Balance sheet as presented above is not classified with regard to GAAP maturities of cash and investments in debt Securities. RED HAT, INC. CASH FLOW SUMMARY (In thousands) Three Three Months Months Ended Ended Nov. 30, Nov. 30, 2003 2002 ------------------- Net income (loss) $4,145 $214 Non-cash expenses 2,382 2,652 Net change in working capital items 5,512 (1,855) --------- --------- Net cash provided by operating activities 12,039 1,011 Cash flows from investing activities: Purchases of property and equipment (1,416) (2,620) Net change in market value of debt securities (202) (123) --------- --------- Net cash provided by (used in) investing activities (1,618) (2,743) Net cash provided by (used in) financing activities 10,846 (173) Effect of foreign currency exchange rates on cash and cash equivalents 809 (31) --------- --------- Net increase in cash and investments 22,076 (1,936) Cash and investments at beginning of period 306,733 288,545 --------- --------- Cash and investments at end of period $328,809 $286,609 ========= ========= CONTACT: Red Hat, Inc. Leigh Day or Gabriel Szulik, 919-754-3700 lday@redhat.com or gszulik@redhat.com