Red Hat Reports Third Quarter Results

Operating cash flow was $100.2 million for the third quarter, as compared to $96.6 million in the year ago quarter. At quarter end, the company’s total deferred revenue balance was $987.7 million, an increase of 21% on a year-over-year basis. Total cash, cash equivalents and investments as of November 30, 2012 were $1.35 billion.

“While we continue to increase investments in new technologies and growth initiatives, our solid performance is driving steady profitability and strong operating cash flow. In Q3, we used our strong balance sheet and cash flow to repurchase approximately $52 million of common stock, in addition to closing the FuseSource acquisition which enhances our offering in the fast-growing Application Integration software space.” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “We have continued this focused investment in key growth opportunities with the announcement of an agreement to acquire ManageIQ, Inc. ManageIQ positions us deeper in the cloud management market which analysts estimate will be a $3 billion market by 2016.”

Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. A live webcast of Red Hat's results will begin at 5:00 pm ET today and 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.

About Red Hat, Inc.

Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As the 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 delays or reductions in information technology spending; the effects of industry consolidation; the ability of the Company to compete effectively; uncertainty and adverse results in litigation and related settlements; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 deliver and stimulate demand for new products and technological innovations on a timely basis; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; fluctuations in exchange rates; 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 JBoss are trademarks of Red Hat, Inc., registered 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,
								2012		2011		2012		2011
Revenue:
	Subscriptions							$294,186		$246,538		$845,557		$710,408
	Training and services							49,420		43,488		135,375		125,684
		Total subscription, training and services revenue						343,606		290,026		980,932		836,092
Cost of revenue:
	Subscriptions							21,153		17,041		57,939		48,876
	Training and services							31,965		28,148		89,056		85,399
		Total cost of subscription, training and services revenue						53,118		45,189		146,995		134,275
	Total gross profit							290,488		244,837		833,937		701,817
Operating expense:
	Sales and marketing							133,792		107,561		378,240		304,617
	Research and development							68,655		53,739		191,901		153,515
	General and administrative							38,122		29,965		109,847		92,277
	Facility exit costs							-		-		3,142		-
		Total operating expense						240,569		191,265		683,130		550,409
Income from operations								49,919		53,572		150,807		151,408
	Interest income							1,936		2,075		6,384		6,138
	Other income (expense), net							(730)		(227)		502		(167)
Income before provision for income taxes								51,125		55,420		157,693		157,379
Provision for income taxes								16,360		17,180		50,462		46,722
Net income								$34,765		$38,240		$107,231		$110,657
Net income per share:
	Basic							$0.18		$0.20		$0.56		$0.57
	Diluted							$0.18		$0.19		$0.55		$0.56
Weighted average shares outstanding:
	Basic							193,374		193,393		193,127		193,162
	Diluted							195,666		196,468		195,898		196,493

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
								November 30,		February 29,
								2012		2012 (1)
								(Unaudited)
Current assets:
	Cash and cash equivalents							$605,911		$549,217
	Investments in debt and equity securities							280,433		264,298
	Accounts receivable, net							254,787		255,180
	Deferred tax assets, net							63,342		69,765
	Prepaid expenses							83,809		81,266
	Other current assets							2,010		1,629
			Total current assets					1,290,292		1,221,355
	Property and equipment, net							128,743		92,065
	Goodwill							608,149		591,563
	Identifiable intangibles, net							130,025		100,638
	Investments in debt securities							463,553		446,838
	Other assets, net							41,137		38,640
			Total assets					$2,661,899		$2,491,099
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses							$155,768		$114,078
	Deferred revenue							735,580		711,408
	Other current obligations							1,082		819
			Total current liabilities					892,430		826,305
	Long term deferred revenue							252,152		235,328
	Other long term obligations							36,095		30,649
Stockholders' equity:
	Common stock							23		23
	Additional paid-in capital							1,770,525		1,709,082
	Retained earnings							498,907		391,676
	Treasury stock, at cost							(780,912)		(696,012)
	Accumulated other comprehensive loss							(7,321)		(5,952)
			Total stockholders' equity					1,481,222		1,398,817
			Total liabilities and stockholders' equity					$2,661,899		$2,491,099
			(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,
							2012		2011		2012		2011
Cash flows from operating activities:
Net income							$34,765		$38,240		$107,231		$110,657
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization							16,126		12,392		44,773		38,278
Share-based compensation expense							26,678		20,770		72,743		55,710
Deferred income taxes							6,686		17,015		29,749		36,225
Excess tax benefits from share-based payment arrangements							(8,100)		(7,626)		(27,900)		(24,298)
Other							(552)		(233)		(2,393)		(550)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable							(35,291)		(35,014)		534		(23,429)
Prepaid expenses							2,652		(3,096)		(4,314)		(6,324)
Accounts payable and accrued expenses							21,554		22,206		47,903		21,595
Deferred revenue							35,207		32,046		56,515		56,167
Other							431		(144)		3,572		(159)
Net cash provided by operating activities							100,156		96,556		328,413		263,872
Cash flows from investing activities:
Purchase of available-for-sale debt securities							(123,318)		(329,730)		(631,087)		(731,016)
Proceeds from sales and maturities of available-for-sale debt securities							169,743		196,991		587,522		578,267
Acquisition of business, net of cash acquired							(21,188)		(135,210)		(31,239)		(135,210)
Purchase of other intangible assets							(5,577)		(643)		(32,440)		(4,245)
Purchase of property and equipment							(28,309)		(11,115)		(64,552)		(31,294)
Other							(66)		(1,622)		264		(1,276)
		Net cash used in investing activities					(8,715)		(281,329)		(171,532)		(324,774)
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements							8,100		7,626		27,900		24,298
Proceeds from exercise of common stock options							4,294		7,139		10,810		15,552
Purchase of treasury stock							(52,018)		-		(84,900)		(56,952)
Payments related to net settlement of employee share-based compensation awards							(22,924)		(20,118)		(45,612)		(32,103)
Payments on other borrowings							(205)		(70)		(682)		(759)
Net cash used in financing activities							(62,753)		(5,423)		(92,484)		(49,964)
Effect of foreign currency exchange rates on cash and cash equivalents							5,647		(20,597)		(7,703)		(5,099)
Net increase (decrease) in cash and cash equivalents							34,335		(210,793)		56,694		(115,965)
Cash and cash equivalents at beginning of the period							571,576		737,458		549,217		642,630
Cash and cash equivalents at end of period							$605,911		$526,665		$605,911		$526,665

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,
	2012		2011		2012		2011
Cost of revenue	$2,444		$2,245		$6,777		$5,877
Sales and marketing	8,875		7,157		23,962		18,829
Research and development	7,935		5,368		22,040		14,445
General and administration	7,424		6,000		19,964		16,559
Total share-based compensation expense	$26,678		$20,770		$72,743		$55,710
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,
	2012		2011		2012		2011
Cost of revenue	$1,433		$669		$3,252		$2,864
Sales and marketing	2,076		1,957		6,272		5,874
Research and development	959		940		2,877		3,254
General and administration	1,476		905		3,800		2,616
Total amortization of intangible assets expense	$5,944		$4,471		$16,201		$14,608
Facility exit costs included in Consolidated Statements of Operations:
	Three Months Ended				Nine Months Ended
	November 30,		November 30,		November 30,		November 30,
	2012		2011		2012		2011
Facility exit costs	-		-		$3,142		-
	Three Months Ended				Nine Months Ended
	November 30,		November 30,		November 30,		November 30,
	2012		2011		2012		2011
GAAP net income	$34,765		$38,240		$107,231		$110,657
Provision for income taxes	16,360		17,180		50,462		46,722
GAAP income before provision for income taxes	$51,125		$55,420		$157,693		$157,379
Add: Non-cash share-based compensation expense	26,678		20,770		72,743		55,710
Add: Amortization of intangible assets	5,944		4,471		16,201		14,608
Add: Facility exit costs	-		-		3,142		-
Non-GAAP adjusted income before provision for income taxes	$83,747		$80,661		$249,779		$227,697
Provision for income taxes (1)	26,799		25,005		79,929		68,521
Non-GAAP adjusted net income (basic and diluted)	$56,948		$55,656		$169,850		$159,176
Non-GAAP adjusted net income per share:
Basic	$0.29		$0.29		$0.88		$0.82
Diluted	$0.29		$0.28		$0.87		$0.81
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision	$83,747		$80,661		$249,779		$227,697
Estimated annual effective tax rate	32.0%		31.0%		32.0%		31.0%
Non-GAAP provision for income taxes before discrete tax benefit	$26,799		$25,005		$79,929		$70,586
Discrete tax benefit	-		-		-		2,065
Provision for income taxes on Non-GAAP adjusted net income	$26,799		$25,005		$79,929		$68,521

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
Reconciliation of GAAP results to non-GAAP adjusted results
							Three Months Ended				Nine Months Ended
							November 30,		November 30,		November 30,		November 30,
							2012		2011		2012		2011
GAAP gross profit							$290,488		$244,837		$833,937		$701,817
Add: Non-cash share-based compensation expense							2,444		2,245		6,777		5,877
Add: Amortization of intangible assets							1,433		669		3,252		2,864
Non-GAAP gross profit							$294,365		$247,751		$843,966		$710,558
Non-GAAP gross margin							86%		85%		86%		85%
							Three Months Ended				Nine Months Ended
							November 30,		November 30,		November 30,		November 30,
							2012		2011		2012		2011
GAAP operating expenses							$240,569		$191,265		$683,130		$550,409
Deduct: Non-cash share-based compensation expense							(24,234)		(18,525)		(65,966)		(49,833)
Deduct: Amortization of intangible assets							(4,511)		(3,802)		(12,949)		(11,744)
Deduct: Facility exit costs							-		-		(3,142)		-
Non-GAAP adjusted operating expenses							$211,824		$168,938		$601,073		$488,832
							Three Months Ended				Nine Months Ended
							November 30,		November 30,		November 30,		November 30,
							2012		2011		2012		2011
GAAP operating income							$49,919		$53,572		$150,807		$151,408
Add: Non-cash share-based compensation expense							26,678		20,770		72,743		55,710
Add: Amortization of intangible assets							5,944		4,471		16,201		14,608
Add: Facility exit costs							-		-		3,142		-
Non-GAAP adjusted operating income							$82,541		$78,813		$242,893		$221,726
Non-GAAP adjusted operating margin							24.0%		27.2%		24.8%		26.5%
							Three Months Ended
							November 30,		November 30,		Year-Over-Year
							2012		2011		Growth Rate
GAAP subscription revenue							$294,186		$246,538		19.3%
Adjustment for currency impact							5,647		-
Non-GAAP subscription revenue on a constant currency basis							$299,833		$246,538		21.6%
GAAP training and services revenue							$49,420		$43,488		13.6%
Adjustment for currency impact							1,024		-
Non-GAAP training and services revenue on a constant currency basis							$50,444		$43,488		16.0%
GAAP total subscription, training and services revenue							$343,606		$290,026		18.5%
Adjustment for currency impact							6,671		-
Non-GAAP total subscription, training and services revenue on a constant currency basis							$350,277		$290,026		20.8%

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