- 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
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