UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM 8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of report (Date of earliest event reported): December 21, 2016
Red Hat,
Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
(State
or Other Jurisdiction of Incorporation)
001-33162 |
06-1364380 |
(Commission File Number) |
(IRS Employer Identification No.) |
100 East Davie Street, Raleigh, North Carolina |
27601 |
(Address of Principal Executive Offices) | (Zip Code) |
(919)
754-3700
(Registrant’s
Telephone Number, Including Area Code)
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On December 21, 2016, Red Hat, Inc. announced its financial results for the fiscal third quarter ended November 30, 2016. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
In the press release, we disclosed non-GAAP financial information for the three months and nine months ended November 30, 2016 and November 30, 2015. These non-GAAP disclosures include non-GAAP revenue growth rates measured on a constant currency basis and a reconciliation of GAAP net income to non-GAAP adjusted net income based on:
● |
the impact of non-cash share-based compensation expense under FASB ASC Section 718 Compensation-Stock Compensation ("ASC 718") and the related excess tax benefits recognized in the provision for income taxes as a result of our early adoption of Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting; |
● |
the impact of expense associated with the amortization of intangible assets primarily related to business combinations; |
● |
the impact of non-cash interest expense related to the debt discount; and |
● |
the impact of transaction costs related to business combinations. |
These non-GAAP disclosures should not be used as a substitute for our GAAP results, but rather read in conjunction with our GAAP results. The non-GAAP financial measures we disclosed and the methods we used to calculate non-GAAP results are not in accordance with GAAP and may be materially different from the non-GAAP measures and methods used by other companies.
We disclosed non-GAAP revenue growth rates for subscription revenue and total revenue measured on a constant currency basis for the three months and nine months ended November 30, 2016 in an effort to provide a comparable framework for assessing how our business performed when compared to the three months and nine months ended November 30, 2015 in light of the effect of exchange rate differences. Approximately 42.8% and 42.5% of our revenue for the three months and nine months ended November 30, 2016, respectively, was produced by sales outside the United States. The income statements of our non-U.S. operations are translated into U.S. dollars using the average exchange rates for each month in an applicable period. To the extent the U.S. dollar weakens against foreign currencies, the translation of transactions denominated in foreign currencies results in increased revenue, as stated in U.S. dollars, for our non-U.S. operations. Similarly, revenue, as stated in U.S. dollars, for our non-U.S. operations decreases if the U.S. dollar strengthens against foreign currencies. Using the average foreign currency exchange rates for each of the three months and nine months ended November 30, 2015, our subscription revenue for the three months and nine months ended November 30, 2016 would have been lower than we reported by $5.5 million and $11.9 million, respectively, and our total revenue for the three months and nine months ended November 30, 2016 would have been lower than we reported by $5.0 million and $9.8 million, respectively.
We excluded GAAP share-based compensation expense and the related excess tax benefits for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share because share-based compensation expense is a non-cash expense which may vary significantly from period to period as a result of changes not directly or immediately related to the particular period’s operational performance. For example, the amount recognized for share-based awards is directly related to the underlying share price of our common stock as of the date of grant, which, in the short-term, may not be directly related to our operational performance. Consequently, management believes that by excluding share-based compensation expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude share-based compensation expense are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash, share-based compensation expense of $54.7 million and $141.4 million and the GAAP related excess tax benefits of $6.2 million and $15.2 million for the three months and nine months ended November 30, 2016, respectively, and $43.4 million and $120.5 million for the three months and nine months ended November 30, 2015, respectively, versus the non-GAAP exclusion of such expense or benefit.
Amortization expense related to intangible assets results primarily from business combinations. These costs are fixed in connection with an acquisition, are then amortized over a number of years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management generally does not consider such costs for the purpose of evaluating the performance of the business or its managers or when making decisions to allocate resources. Management also believes that non-GAAP measures of profitability that exclude amortization expense related to intangible assets are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash amortization expense of $7.7 million and $22.6 million for the three months and nine months ended November 30, 2016, respectively, and $7.0 million and $18.9 million for the three months and nine months ended November 30, 2015, respectively, versus the non-GAAP exclusion of such expense.
We also excluded GAAP non-cash interest expense relating to our 0.25% convertible senior notes issued in October 2014 for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be accounted for as separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s non-convertible debt borrowing rate. This results in the debt component being treated as though it was issued at a discount, with the debt discount being accreted as additional non-cash interest expense over the term of the notes using the effective interest method. As a result, management believes that excluding this non-cash interest expense from the accretion of the debt discount in calculating our non-GAAP measures is useful because this incremental interest expense does not represent a cash outflow and is not indicative of our ongoing operational performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash interest expense related to the debt discount of $4.8 million and $14.3 million for the three months and nine months ended November 30, 2016, respectively, and $4.7 million and $13.9 million for the three months and nine months ended November 30, 2015, respectively, versus the non-GAAP exclusion of such expense.
We also excluded GAAP expense relating to costs we incurred in connection with business combinations. These costs include acquisition-related charges such as transaction expenses. As we do not acquire or dispose of businesses on a predictable cycle, the terms of each acquisition are unique and can vary significantly from other acquisitions and significant expense can be incurred in connection with an acquisition that we would not have otherwise incurred in the periods presented as part of our continuing operations, management believes that by excluding such expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude acquisition-related charges are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP acquisition-related expense of $1.8 million for the nine months ended November 30, 2016 and $3.8 million for each of the three months and nine months ended November 30, 2015 versus the non-GAAP exclusion of such expense.
Management believes that these adjusted non-GAAP results, when read in conjunction with the GAAP results, offer a useful view of our business performance in that they provide a more consistent means of comparing performance to prior periods in light of the effect of exchange rate differences, potential variations in the amount of expense for share-based awards recognized from period to period due to changes in the price of our common stock, the irregularity with which management acquires intangible assets, the non-cash interest expense related to the debt discount and transaction costs we incurred in connection with business combinations. Management also uses non-GAAP measures as a component of its regular internal reporting to evaluate performance of the business and compare it to prior performance, to make operating decisions, including internal budgeting and the calculation of incentive compensation, and to forecast future performance. Our disclosure of non-GAAP financial measures allows investors to evaluate the Company's performance using information used by management.
The information furnished pursuant to Item 2.02 of this Form 8-K, including Exhibit 99.1 referenced herein, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press
Release dated December 21, 2016
SIGNATURE
Pursuant to
the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: |
December 21, 2016 |
RED HAT, INC. |
|
By: |
/s/ Frank A. Calderoni |
||
|
Name: |
Frank A. Calderoni |
|
Title: |
Executive Vice President, Operations and |
EXHIBIT INDEX
Exhibit No. |
Description |
|
99.1 |
Press Release dated December 21, 2016 |
Exhibit 99.1
Red Hat Reports Third Quarter Results for Fiscal Year 2017
RALEIGH, N.C.--(BUSINESS WIRE)--December 21, 2016--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the third quarter of fiscal year 2017 ended November 30, 2016.
“Enterprise and service provider customers continue to adopt a hybrid cloud strategy for developing, deploying and managing the life-cycle of their critical applications. Red Hat is uniquely positioned to address this need. In aggregate, customers utilizing our cloud-enabling technologies either on-premise or in the public cloud are spending more with Red Hat than customers that have not yet embraced our cloud-enabling technologies," said Jim Whitehurst, President and Chief Executive Officer of Red Hat.
CFO Transition: Frank Calderoni notified Red Hat of his decision to step down as Executive Vice President, Operations and Chief Financial Officer of Red Hat, effective in late January 2017, to enable him to accept a chief executive officer position at another company. Mr. Calderoni has indicated that he would make himself available to Red Hat after the effective date of the resignation for transitional support, as needed. Jim Whitehurst, President and CEO, after consulting with the Board of Directors of Red Hat, announced that upon Mr. Calderoni’s resignation in January, Red Hat intends to appoint Eric Shander, Vice President, Finance and Accounting and our principal accounting officer, to act as the CFO of Red Hat, pending a decision on a permanent replacement.
Jim Whitehurst said, “Our warm thanks to Frank for his contributions to Red Hat and for helping prepare Red Hat for the rich business opportunity we have before us.”
Frank Calderoni said, “I want to thank the associates around the globe for the opportunity to be part of the Red Hat team. I am most proud of the leadership team we were able to build. We also enhanced the strong operational and financial foundation that has enabled the company’s continued growth. Red Hat is an exceptional company and well positioned to continue to leverage the broad transformation that is occurring in the IT industry.”
Revenue: Total revenue for the quarter was $615 million, up 18% in U.S. dollars year-over-year, or 17% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $543 million, up 19% in U.S. dollars year-over-year, or 18% 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 $431 million, an increase of 16% in U.S. dollars year-over-year and 14% measured in constant currency. Subscription revenue from Application development-related and other emerging technologies offerings for the quarter was $112 million, an increase of 33% in U.S. dollars year-over-year and 32% measured in constant currency.
Operating Income: GAAP operating income for the quarter was $81 million, up 17% 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 third quarter was $143 million, up 16% year-over-year. Non-GAAP references in this release are detailed in the tables below. For the third quarter, GAAP operating margin was 13.1% and non-GAAP operating margin was 23.3%.
Net Income: GAAP net income for the quarter was $68 million, or $0.37 per diluted share, compared with $47 million, or $0.25 per diluted share, in the year-ago quarter. During the third quarter of fiscal year 2017, GAAP net income and earnings per diluted share benefited by $6 million and approximately $0.03, respectively, from the adoption of Accounting Standards Update 2016-09 ("ASU 2016-09") in the first quarter of fiscal year 2017.
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 $111 million, or $0.61 per diluted share, as compared to $89 million, or $0.48 per diluted share, in the year-ago quarter. Non-GAAP diluted weighted average shares outstanding excludes any dilution resulting from the convertible notes because any potential dilution is expected to be offset by our convertible note hedge transactions.
Cash: Operating cash flow was $136 million for the third quarter, a decrease of 8% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2016 was $2.0 billion after repurchasing approximately $125 million, or approximately 1.6 million shares, of common stock in the third quarter. The remaining balance in the current repurchase authorization as of November 30, 2016 was approximately $775 million.
Deferred revenue: At the end of the third quarter, the company’s total deferred revenue balance was $1.7 billion, an increase of 15% year-over-year. The full year positive impact to total deferred revenue from changes in foreign exchange rates was $9 million year-over-year. On a constant currency basis, total deferred revenue would have been up 14% year-over-year.
Outlook: Red Hat’s outlook assumes current foreign currency exchange rates, which have weakened since the outlook provided on September 21, 2016, and current business conditions.
For the full year:
For the fourth quarter:
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 $195 million, amortization of intangible assets of approximately $32 million, and transaction costs related to business combinations of $2 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 $19 million and an estimated annual effective tax rate of 27% before discrete tax items. Additionally, full year fully diluted non-GAAP EPS excludes approximately $16 million of discrete tax benefits related to share-based compensation that are included in full year fully diluted GAAP EPS.
Fourth quarter non-GAAP operating margin guidance is derived by subtracting the estimated impact of non-cash share-based compensation expense of approximately $54 million and amortization of intangible assets of approximately $8 million. Fourth 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 27% before discrete tax items. Additionally, fourth quarter fully diluted non-GAAP EPS excludes approximately $1 million of discrete tax benefits related to share-based compensation that are included in fourth quarter fully diluted GAAP EPS.
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; the ability to meet financial and operational challenges encountered in our international operations; ineffective management of, and control over, the Company's growth and international operations; and changes in and a dependence on key personnel, 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 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® 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 | Nine Months Ended | ||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenue: | |||||||||||||||
Subscriptions | $ | 543,318 | $ | 457,488 | $ | 1,576,192 | $ | 1,323,807 | |||||||
Training and services | 71,942 | 66,092 | 206,771 | 184,921 | |||||||||||
Total subscription, training and services revenue | 615,260 | 523,580 | 1,782,963 | 1,508,728 | |||||||||||
Cost of revenue: | |||||||||||||||
Subscriptions | 40,660 | 32,246 | 116,882 | 93,088 | |||||||||||
Training and services | 49,793 | 48,802 | 145,289 | 135,321 | |||||||||||
Total cost of subscription, training and services revenue | 90,453 | 81,048 | 262,171 | 228,409 | |||||||||||
Total gross profit | 524,807 | 442,532 | 1,520,792 | 1,280,319 | |||||||||||
Operating expense: | |||||||||||||||
Sales and marketing | 267,080 | 215,784 | 763,583 | 619,757 | |||||||||||
Research and development | 122,469 | 104,906 | 358,750 | 304,824 | |||||||||||
General and administrative | 54,485 | 52,965 | 160,439 | 139,462 | |||||||||||
Total operating expense | 444,034 | 373,655 | 1,282,772 | 1,064,043 | |||||||||||
Income from operations | 80,773 | 68,877 | 238,020 | 216,276 | |||||||||||
Interest income | 3,346 | 2,874 | 10,167 | 8,484 | |||||||||||
Interest expense | 6,009 | 5,817 | 17,820 | 17,265 | |||||||||||
Other income (expense), net | (1,392 | ) | 49 | (1,860 | ) | (1,398 | ) | ||||||||
Income before provision for income taxes | 76,718 | 65,983 | 228,507 | 206,097 | |||||||||||
Provision for income taxes (1) | 8,775 | 19,135 | 40,607 | 59,768 | |||||||||||
Net income | $ | 67,943 | $ | 46,848 | $ | 187,900 | $ | 146,329 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.38 | $ | 0.26 | $ | 1.04 | $ | 0.80 | |||||||
Diluted | $ | 0.37 | $ | 0.25 | $ | 1.02 | $ | 0.78 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 179,233 | 182,850 | 180,245 | 183,054 | |||||||||||
Diluted | 182,682 | 186,094 | 183,453 | 186,414 | |||||||||||
(1) Provision for income taxes for the three and nine months ended November 30, 2016 includes the impact of early adoption of ASU 2016-09. ASU 2016-09 requires that the amendment related to accounting for income taxes be adopted on a prospective basis. Accordingly, the provision for income taxes for the three and nine months ended November 30, 2015 has not been adjusted. The provision for income taxes for the three and nine months ended November 30, 2016 includes the effect of discrete tax benefits of $6.2 million and $15.2 million, respectively, related to excess tax benefits from share-based compensation.
RED HAT, INC. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited) | ||||||||||
(In thousands) | ||||||||||
ASSETS | ||||||||||
November 30, | February 29, | |||||||||
2016 |
2016 (1) |
|||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 916,678 | $ | 927,778 | ||||||
Investments in debt and equity securities | 378,189 | 281,142 | ||||||||
Accounts receivable, net | 427,436 | 509,715 | ||||||||
Prepaid expenses | 156,603 | 150,877 | ||||||||
Other current assets | 1,666 | 2,921 | ||||||||
Total current assets | 1,880,572 | 1,872,433 | ||||||||
Property and equipment, net | 174,450 | 166,886 | ||||||||
Goodwill | 1,042,396 | 1,027,277 | ||||||||
Identifiable intangibles, net | 142,425 | 146,071 | ||||||||
Investments in debt securities | 676,503 | 786,470 | ||||||||
Deferred tax assets, net | 108,955 | 111,456 | ||||||||
Other assets, net | 59,792 | 44,506 | ||||||||
Total assets | $ | 4,085,093 | $ | 4,155,099 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued expenses | $ | 270,763 | $ | 284,802 | ||||||
Deferred revenue | 1,225,421 | 1,272,908 | ||||||||
Other current obligations | 1,754 | 1,467 | ||||||||
Total current liabilities | 1,497,938 | 1,559,177 | ||||||||
Convertible notes | 740,153 | 723,942 | ||||||||
Long term deferred revenue | 482,557 | 449,636 | ||||||||
Other long term obligations | 92,643 | 87,912 | ||||||||
Stockholders' equity: | ||||||||||
Common stock | 24 | 23 | ||||||||
Additional paid-in capital | 2,246,034 | 2,162,264 | ||||||||
Retained earnings | 1,287,188 | 1,099,738 | ||||||||
Treasury stock, at cost | (2,172,326 | ) | (1,853,144 | ) | ||||||
Accumulated other comprehensive loss | (89,118 | ) | (74,449 | ) | ||||||
Total stockholders' equity | 1,271,802 | 1,334,432 | ||||||||
Total liabilities and stockholders' equity | $ | 4,085,093 | $ | 4,155,099 | ||||||
(1) Derived from audited financial statements | ||||||||||
RED HAT, INC. | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 67,943 | $ | 46,848 | $ | 187,900 | $ | 146,329 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||||||
Depreciation and amortization | 21,870 | 19,858 | 63,732 | 56,944 | ||||||||||||||||
Share-based compensation expense | 54,741 | 43,407 | 141,373 | 120,466 | ||||||||||||||||
Deferred income taxes | 13,818 | 5,841 | 6,199 | 3,912 | ||||||||||||||||
Excess tax benefits from share-based payment arrangements | 6,362 | 8,756 | 15,497 | 17,987 | ||||||||||||||||
Net amortization of bond premium on available-for-sale debt securities | 3,120 | 3,055 | 9,954 | 8,791 | ||||||||||||||||
Accretion of debt discount and amortization of debt issuance costs | 5,453 | 5,279 | 16,211 | 15,697 | ||||||||||||||||
Other | 986 | 853 | 549 | 2,761 | ||||||||||||||||
Changes in operating assets and liabilities net of effects of acquisitions: | ||||||||||||||||||||
Accounts receivable | (73,149 | ) | (96,964 | ) | 86,496 | 64,515 | ||||||||||||||
Prepaid expenses | (18,897 | ) | (9,032 | ) | (19,387 | ) | 3,618 | |||||||||||||
Accounts payable and accrued expenses | (10,775 | ) | 21,886 | (30,333 | ) | 3,954 | ||||||||||||||
Deferred revenue | 64,181 | 96,664 | (8,865 | ) | 40,085 | |||||||||||||||
Other | 706 | 1,908 | (3,868 | ) | 1,567 | |||||||||||||||
Net cash provided by operating activities | 136,359 | 148,359 | 465,458 | 486,626 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of available-for-sale debt securities | (118,152 | ) | (180,744 | ) | (415,796 | ) | (783,568 | ) | ||||||||||||
Proceeds from sales and maturities of available-for-sale debt securities | 113,759 | 235,931 | 408,469 | 589,131 | ||||||||||||||||
Acquisition of businesses, net of cash acquired | - | (125,011 | ) | (28,667 | ) | (126,711 | ) | |||||||||||||
Purchase of other intangible assets | (2,323 | ) | (2,097 | ) | (8,712 | ) | (8,094 | ) | ||||||||||||
Purchase of property and equipment | (17,244 | ) | (8,486 | ) | (50,436 | ) | (29,458 | ) | ||||||||||||
Other | (92 | ) | (90 | ) | (203 | ) | (3,249 | ) | ||||||||||||
Net cash used in investing activities | (24,052 | ) | (80,497 | ) | (95,345 | ) | (361,949 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from exercise of common stock options | 1,205 | 723 | 3,273 | 3,312 | ||||||||||||||||
Proceeds from employee stock purchase program | 7,155 | - | 7,155 | - | ||||||||||||||||
Purchase of treasury stock | (125,318 | ) | (78,172 | ) | (319,182 | ) | (148,251 | ) | ||||||||||||
Payments related to net settlement of employee share-based compensation awards | (25,769 | ) | (27,879 | ) | (63,245 | ) | (60,816 | ) | ||||||||||||
Payments on other borrowings | (462 | ) | (395 | ) | (1,368 | ) | (1,132 | ) | ||||||||||||
Other | (84 | ) | (220 | ) | 829 | (220 | ) | |||||||||||||
Net cash used in financing activities | (143,273 | ) | (105,943 | ) | (372,538 | ) | (207,107 | ) | ||||||||||||
Effect of foreign currency exchange rates on cash and cash equivalents | (22,925 | ) | (11,489 | ) | (8,675 | ) | (23,006 | ) | ||||||||||||
Net decrease in cash and cash equivalents | (53,891 | ) | (49,570 | ) | (11,100 | ) | (105,436 | ) | ||||||||||||
Cash and cash equivalents at beginning of the period | 970,569 | 991,607 | 927,778 | 1,047,473 | ||||||||||||||||
Cash and cash equivalents at end of period | $ | 916,678 | $ | 942,037 | $ | 916,678 | $ | 942,037 | ||||||||||||
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 | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Cost of revenue | $ | 4,037 | $ | 4,074 | $ | 12,396 | $ | 11,952 | ||||||||
Sales and marketing | 26,624 | 17,192 | 65,426 | 49,386 | ||||||||||||
Research and development | 13,814 | 13,059 | 38,785 | 35,955 | ||||||||||||
General and administration | 10,266 | 9,082 | 24,766 | 23,173 | ||||||||||||
Total share-based compensation expense | $ | 54,741 | $ | 43,407 | $ | 141,373 | $ | 120,466 | ||||||||
Amortization of intangible assets expense included in Consolidated Statements of Operations: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Cost of revenue | $ | 4,233 | $ | 3,100 | $ | 11,701 | $ | 8,291 | ||||||||
Sales and marketing | 1,695 | 2,330 | 5,516 | 6,345 | ||||||||||||
Research and development | 34 | 312 | 103 | 854 | ||||||||||||
General and administration | 1,690 | 1,238 | 5,291 | 3,450 | ||||||||||||
Total amortization of intangible assets expense | $ | 7,652 | $ | 6,980 | $ | 22,611 | $ | 18,940 | ||||||||
Non-cash interest expense related to the debt discount included in Consolidated Statements of Operations: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Total non-cash interest expense related to the debt discount | $ | 4,800 | $ | 4,664 | $ | 14,284 | $ | 13,883 | ||||||||
Transaction costs related to business combinations included in Consolidated Statements of Operations: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Transaction costs related to business combinations | - | $ | 3,792 | $ | 1,789 | $ | 3,844 | |||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
GAAP net income | $ | 67,943 | $ | 46,848 | $ | 187,900 | $ | 146,329 | ||||||||
GAAP provision for income taxes | 8,775 | 19,135 | 40,607 | 59,768 | ||||||||||||
GAAP income before provision for income taxes | $ | 76,718 | $ | 65,983 | $ | 228,507 | $ | 206,097 | ||||||||
Add: Non-cash share-based compensation expense | 54,741 | 43,407 | 141,373 | 120,466 | ||||||||||||
Add: Amortization of intangible assets | 7,652 | 6,980 | 22,611 | 18,940 | ||||||||||||
Add: Non-cash interest expense related to the debt discount | 4,800 | 4,664 | 14,284 | 13,883 | ||||||||||||
Add: Transaction costs related to business combinations | - | 3,792 | 1,789 | 3,844 | ||||||||||||
Non-GAAP adjusted income before provision for income taxes | $ | 143,911 | $ | 124,826 | $ | 408,564 | $ | 363,230 | ||||||||
Non-GAAP provision for income taxes (1) | 33,160 | 36,200 | 104,405 | 105,337 | ||||||||||||
Non-GAAP adjusted net income (basic and diluted) | $ | 110,751 | $ | 88,626 | $ | 304,159 | $ | 257,893 | ||||||||
Non-GAAP adjusted diluted weighted average shares outstanding: | ||||||||||||||||
GAAP diluted weighted average shares outstanding | 182,682 | 186,094 | 183,453 | 186,414 | ||||||||||||
Dilution offset from convertible note hedge transactions | (514 | ) | (390 | ) | (228 | ) | (349 | ) | ||||||||
Non-GAAP diluted weighted average shares outstanding | 182,168 | 185,704 | 183,225 | 186,065 | ||||||||||||
Non-GAAP adjusted net income per share: | ||||||||||||||||
Basic | $ | 0.62 | $ | 0.48 | $ | 1.69 | $ | 1.41 | ||||||||
Diluted | $ | 0.61 | $ | 0.48 | $ | 1.66 | $ | 1.39 | ||||||||
(1) Non-GAAP provision for income taxes: | ||||||||||||||||
Non-GAAP adjusted income before provision for income taxes | $ | 143,911 | $ | 124,826 | $ | 408,564 | $ | 363,230 | ||||||||
GAAP estimated annual effective tax rate | 27.0 | % | 29.0 | % | 27.0 | % | 29.0 | % | ||||||||
Provision for income taxes on Non-GAAP adjusted net income before discrete tax benefits | $ | 38,856 | $ | 36,200 | $ | 110,312 | $ | 105,337 | ||||||||
Discrete tax expense (benefit), excluding discrete benefits related to share-based compensation | (5,696 | ) | - | (5,907 | ) | - | ||||||||||
Provision for income taxes on Non-GAAP adjusted net income excluding discrete benefits related to share-based compensation | $ | 33,160 | $ | 36,200 | $ | 104,405 | $ | 105,337 | ||||||||
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 | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
GAAP gross profit | $ | 524,807 | $ | 442,532 | $ | 1,520,792 | $ | 1,280,319 | ||||||||
Add: Non-cash share-based compensation expense | 4,037 | 4,074 | 12,396 | 11,952 | ||||||||||||
Add: Amortization of intangible assets | 4,233 | 3,100 | 11,701 | 8,291 | ||||||||||||
Non-GAAP gross profit | $ | 533,077 | $ | 449,706 | $ | 1,544,889 | $ | 1,300,562 | ||||||||
Non-GAAP gross margin | 86.6 | % | 85.9 | % | 86.6 | % | 86.2 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
GAAP operating expenses | $ | 444,034 | $ | 373,655 | $ | 1,282,772 | $ | 1,064,043 | ||||||||
Deduct: Non-cash share-based compensation expense | (50,704 | ) | (39,333 | ) | (128,977 | ) | (108,514 | ) | ||||||||
Deduct: Amortization of intangible assets | (3,419 | ) | (3,880 | ) | (10,910 | ) | (10,649 | ) | ||||||||
Deduct: Transaction costs related to business combinations | - | (3,792 | ) | (1,789 | ) | (3,844 | ) | |||||||||
Non-GAAP adjusted operating expenses | $ | 389,911 | $ | 326,650 | $ | 1,141,096 | $ | 941,036 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
November 30, | November 30, | November 30, | November 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
GAAP operating income | $ | 80,773 | $ | 68,877 | $ | 238,020 | $ | 216,276 | ||||||||
Add: Non-cash share-based compensation expense | 54,741 | 43,407 | 141,373 | 120,466 | ||||||||||||
Add: Amortization of intangible assets | 7,652 | 6,980 | 22,611 | 18,940 | ||||||||||||
Add: Transaction costs related to business combinations | - | 3,792 | 1,789 | 3,844 | ||||||||||||
Non-GAAP adjusted operating income | $ | 143,166 | $ | 123,056 | $ | 403,793 | $ | 359,526 | ||||||||
Non-GAAP adjusted operating margin | 23.3 | % | 23.5 | % | 22.6 | % | 23.8 | % | ||||||||
Three Months Ended | ||||||||||||||||
November 30, | November 30, | Year-Over-Year | ||||||||||||||
2016 | 2015 | Growth Rate | ||||||||||||||
GAAP subscription revenue by offering type | ||||||||||||||||
Infrastructure-related offerings | $ | 431,142 | $ | 373,091 | 15.6 | % | ||||||||||
Adjustment for currency impact | (4,491 | ) | - | |||||||||||||
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis | $ | 426,651 | $ | 373,091 | 14.4 | % | ||||||||||
Application development-related and other emerging technology offerings | $ | 112,176 | $ | 84,397 | 32.9 | % | ||||||||||
Adjustment for currency impact | (969 | ) | - | |||||||||||||
Non-GAAP Application development-related and other emerging technology subscription revenue on a constant currency basis | $ | 111,207 | $ | 84,397 | 31.8 | % | ||||||||||
GAAP subscription revenue | $ | 543,318 | $ | 457,488 | 18.8 | % | ||||||||||
Adjustment for currency impact | (5,460 | ) | - | |||||||||||||
Non-GAAP subscription revenue on a constant currency basis | $ | 537,858 | $ | 457,488 | 17.6 | % | ||||||||||
GAAP training and services revenue | $ | 71,942 | $ | 66,092 | 8.9 | % | ||||||||||
Adjustment for currency impact | 479 | - | ||||||||||||||
Non-GAAP training and services revenue on a constant currency basis | $ | 72,421 | $ | 66,092 | 9.6 | % | ||||||||||
GAAP total subscription, training and services revenue | $ | 615,260 | $ | 523,580 | 17.5 | % | ||||||||||
Adjustment for currency impact | (4,981 | ) | - | |||||||||||||
Non-GAAP total subscription, training and services revenue on a constant currency basis | $ | 610,279 | $ | 523,580 | 16.6 | % | ||||||||||
Nine Months Ended | ||||||||||||||||
November 30, | November 30, | Year-Over-Year | ||||||||||||||
2016 | 2015 | Growth Rate | ||||||||||||||
GAAP subscription revenue by offering type | ||||||||||||||||
Infrastructure-related offerings | $ | 1,261,359 | $ | 1,089,758 | 15.7 | % | ||||||||||
Adjustment for currency impact | (10,066 | ) | - | |||||||||||||
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis |
$ | 1,251,293 | $ | 1,089,758 | 14.8 | % | ||||||||||
Application development-related and other emerging technology offerings | $ | 314,833 | $ | 234,049 | 34.5 | % | ||||||||||
Adjustment for currency impact | (1,814 | ) | - | |||||||||||||
Non-GAAP Application development-related and other emerging technology subscription revenue on a constant currency basis | $ | 313,019 | $ | 234,049 | 33.7 | % | ||||||||||
GAAP subscription revenue | $ | 1,576,192 | $ | 1,323,807 | 19.1 | % | ||||||||||
Adjustment for currency impact | (11,880 | ) | - | |||||||||||||
Non-GAAP subscription revenue on a constant currency basis | $ | 1,564,312 | $ | 1,323,807 | 18.2 | % | ||||||||||
GAAP training and services revenue | $ | 206,771 | $ | 184,921 | 11.8 | % | ||||||||||
Adjustment for currency impact | 2,088 | - | ||||||||||||||
Non-GAAP training and services revenue on a constant currency basis | $ | 208,859 | $ | 184,921 | 12.9 | % | ||||||||||
GAAP total subscription, training and services revenue | $ | 1,782,963 | $ | 1,508,728 | 18.2 | % | ||||||||||
Adjustment for currency impact | (9,792 | ) | - | |||||||||||||
Non-GAAP total subscription, training and services revenue on a constant currency basis | $ | 1,773,171 | $ | 1,508,728 | 17.5 | % | ||||||||||
RED HAT, INC. | ||||||||||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Change in deferred revenue balances | ||||||||||||||||
Current Deferred Revenue |
Long-Term Deferred Revenue |
Total Deferred Revenue |
||||||||||||||
Balance at November 30, 2015 | $ | 1,080,572 | $ | 406,562 | $ | 1,487,134 | ||||||||||
Constant currency change in deferred revenue (1) | 138,563 | 73,340 | 211,903 | |||||||||||||
Impact from foreign currency translation | 6,286 | 2,655 | 8,941 | |||||||||||||
Balance at November 30, 2016 | $ | 1,225,421 | $ | 482,557 | $ | 1,707,978 | ||||||||||
Year-over-year growth rate | 13.4 | % | 18.7 | % | 14.9 | % | ||||||||||
Year-over-year growth rate on a constant currency basis | 12.8 | % | 18.0 | % | 14.2 | % | ||||||||||
(1) Change in deferred revenue includes approximately $0.4 million acquired as part of business combinations. | ||||||||||||||||
Revenue growth by geographical segment |
||||||||||||||||
Americas | EMEA | APAC | Consolidated | |||||||||||||
Total revenue for the three months ended November 30, 2016 | $ | 393,589 | $ | 132,568 | $ | 89,103 | $ | 615,260 | ||||||||
Adjustment for currency impact | 606 | 801 | (6,388 | ) | (4,981 | ) | ||||||||||
Total revenue on a constant currency basis for the three months ended November 30, 2016 | $ | 394,195 | $ | 133,369 | $ | 82,715 | $ | 610,279 | ||||||||
Total revenue for the three months ended November 30, 2015 | $ | 342,368 | $ | 114,909 | $ | 66,303 | $ | 523,580 | ||||||||
Year-over-year growth rate | 15.0 | % | 15.4 | % | 34.4 | % | 17.5 | % | ||||||||
Year-over-year growth rate on a constant currency basis | 15.1 | % | 16.1 | % | 24.8 | % | 16.6 | % | ||||||||
Total revenue for the nine months ended November 30, 2016 | $ | 1,144,841 | $ | 384,334 | $ | 253,788 | $ | 1,782,963 | ||||||||
Adjustment for currency impact | 6,901 | (3,480 | ) | (13,213 | ) | (9,792 | ) | |||||||||
Total revenue on a constant currency basis for the nine months ended November 30, 2016 | $ | 1,151,742 | $ | 380,854 | $ | 240,575 | $ | 1,773,171 | ||||||||
Total revenue for the nine months ended November 30, 2015 | $ | 996,405 | $ | 320,836 | $ | 191,487 | $ | 1,508,728 | ||||||||
Year-over-year growth rate | 14.9 | % | 19.8 | % | 32.5 | % | 18.2 | % | ||||||||
Year-over-year growth rate on a constant currency basis | 15.6 | % | 18.7 | % | 25.6 | % | 17.5 | % | ||||||||
CONTACT:
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