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Red Hat Reports Fourth Quarter And Fiscal Year 2013 Results

“During fiscal year 2013, we invested aggressively in new product areas such as storage, cloud computing, management and big data through new internal initiatives and three acquisitions in the second half of the fiscal year. Despite these investments, we generated over 9% year-over-year growth in non-GAAP operating income and 19% full year operating cash flow growth,” stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. “These investments enhance our strategic position in the data center and increase our addressable market.”

The billings proxy, which we define as total revenue plus the change in deferred revenue as reflected on the Consolidated Statement of Cash Flows, was $1.49 billion for the fiscal year 2013 compared with $1.31 billion for the prior fiscal year, an increase of 14%. Total backlog for fiscal year 2013 was in excess of $1.37 billion or up over 19% year-over-year. We define total backlog as the value of non-cancellable subscription and service contracts, including total deferred revenue, which is billed, plus the value of customer contracts to be billed in the future not reflected in our financial statements. The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $280 million as of February 28, 2013, compared with in excess of $200 million for the fiscal year ending February 29, 2012, up over 40% year-over-year.

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 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: 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; the integration of acquisitions and the ability to market successfully acquired technologies and products; 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 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, Inc. Red Hat, the Shadowman logo and JBoss are registered trademarks of Red Hat, Inc. in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
               
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012 (1)
Revenue:
 
Subscriptions $302,783 $255,167 $1,148,341 $965,575
Training and services 45,101 41,844 180,476 167,528
 
 
Total subscription, training and services revenue 347,884 297,011 1,328,817 1,133,103
 
Cost of revenue:
 
Subscriptions 22,400 17,360 80,340 66,237
Training and services 31,203 26,912 120,260 112,311
 
 
Total cost of subscription, training and services revenue 53,603 44,272 200,600 178,548
 
 
Total gross profit 294,281 252,739 1,128,217 954,555
 
Operating expense:
Sales and marketing 136,314 115,018 514,554 419,635
Research and development 71,248 55,147 263,150 208,662
General and administrative 36,487 34,069 146,333 126,345
Facility exit costs - - 3,142 -
 
Total operating expense 244,049 204,234 927,179 754,642
 
Income from operations 50,232 48,505 201,038 199,913
Interest income 1,861 2,279 8,245 8,418
Other income (expense), net (34) (155) 469 (322)
 
 
Income before provision for income taxes 52,059 50,629 209,752 208,009
Provision for income taxes 9,086 14,661 59,548 61,383
 
Net income $42,973 $35,968 $150,204 $146,626
 
Net income per share:
Basic $0.22 $0.19 $0.78 $0.76
Diluted $0.22 $0.18 $0.77 $0.75
 
Weighted average shares outstanding:
Basic 193,207 193,117 193,147 193,151
Diluted 195,133 195,879 195,804 196,451
 
 
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
     
(In thousands)
 
ASSETS
February 28, February 29,
2013 2012 (1)
(Unaudited)
Current assets:
Cash and cash equivalents $487,084 $549,217
Investments in debt and equity securities 392,381 264,298
Accounts receivable, net 302,942 255,180
Deferred tax assets, net 88,765 69,765
Prepaid expenses 94,421 81,266
Other current assets 3,156 1,629
 
Total current assets 1,368,749 1,221,355
 
Property and equipment, net 141,586 92,065
Goodwill 690,911 591,563
Identifiable intangibles, net 142,243 100,638
Investments in debt securities 438,908 446,838
Other assets, net 31,263 38,640
 
Total assets $2,813,660 $2,491,099
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $154,202 $114,078
Deferred revenue 830,486 711,408
Other current obligations 1,024 819
 
Total current liabilities 985,712 826,305
 
Long term deferred revenue 259,466 235,328
Other long term obligations 48,321 30,649
Stockholders' equity:
Common stock 23 23
Additional paid-in capital 1,802,899 1,709,082
Retained earnings 541,880 391,676
Treasury stock, at cost (816,674) (696,012)
Accumulated other comprehensive loss (7,967) (5,952)
 
Total stockholders' equity 1,520,161 1,398,817
 
Total liabilities and stockholders' equity $2,813,660 $2,491,099
 
 
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
               
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012 (1)
 
Cash flows from operating activities:
Net income $42,973 $35,968 $150,204 $146,626
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 17,568 13,094 62,341 51,372
Share-based compensation expense 25,954 23,557 98,698 79,267
Deferred income taxes 10,101 9,477 39,849 45,702
Excess tax benefits from share-based payment arrangements (6,319) (5,633) (34,219) (29,931)
Net amortization of bond premium on available-for-sale debt securities 1,795 1,970 6,889 6,518
Other (233) (636) (2,626) (1,186)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable (47,447) (46,981) (46,913) (70,410)
Prepaid expenses (10,411) (12,866) (14,726) (19,190)
Accounts payable and accrued expenses (2,612) (11,060) 40,196 5,986
Deferred revenue 106,059 120,688 162,574 176,855
Other (541) 433 3,030 274
 
Net cash provided by operating activities 136,887 128,011 465,297 391,883
 
Cash flows from investing activities:
Purchase of available-for-sale debt securities (244,341) (231,958) (875,428) (962,974)
Proceeds from sales and maturities of available-for-sale debt securities 153,779 213,318 741,301 791,585
Acquisition of business, net of cash acquired (104,262) - (135,501) (135,210)
Purchase of other intangible assets (1,927) (1,104) (34,367) (5,349)
Purchase of property and equipment (21,119) (14,974) (85,671) (46,269)
Other 353 633 617 (643)
 
Net cash used in investing activities (217,517) (34,085) (389,049) (358,860)
 
Cash flows from financing activities:
Excess tax benefits from share-based payment arrangements 6,319 5,633 34,219 29,931
Proceeds from exercise of common stock options 668 1,259 11,478 16,812
Purchase of treasury stock (35,761) (76,268) (120,662) (133,220)
Payments related to net settlement of employee share-based compensation awards (4,373) (4,229) (49,984) (36,332)
Payments on other borrowings (335) (267) (1,016) (1,027)
 
Net cash used in financing activities (33,482) (73,872) (125,965) (123,836)
 
Effect of foreign currency exchange rates on cash and cash equivalents (4,715) 2,498 (12,416) (2,600)
Net increase (decrease) in cash and cash equivalents (118,827) 22,552 (62,133) (93,413)
Cash and cash equivalents at beginning of the period 605,911 526,665 549,217 642,630
 
Cash and cash equivalents at end of period $487,084 $549,217 $487,084 $549,217
 
 
(1) Derived from audited financial statements

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 Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
Cost of revenue $2,656 $2,003 $9,433 $7,880
Sales and marketing 8,944 6,231 32,906 25,060
Research and development 7,606 7,126 29,647 21,570
General and administration 6,748 8,197 26,712 24,757
Total share-based compensation expense $25,954 $23,557 $98,698 $79,267
 
 
Amortization of intangible assets expense included in Consolidated Statements of Operations:
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
Cost of revenue $2,695 $670 $5,943 $3,533
Sales and marketing 2,144 2,473 8,416 8,348
Research and development 959 940 3,836 4,194
General and administration 1,528 1,058 5,328 3,674
Total amortization of intangible assets expense $7,326 $5,141 $23,523 $19,749
 
 
Facility exit costs included in Consolidated Statements of Operations:
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
Facility exit costs - - $3,142 -
 
 
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
GAAP net income $42,973 $35,968 $150,204 $146,626
 
Provision for income taxes 9,086 14,661 59,548 61,383
 
GAAP income before provision for income taxes $52,059 $50,629 $209,752 $208,009
 
Add: Non-cash share-based compensation expense 25,954 23,557 98,698 79,267
Add: Amortization of intangible assets 7,326 5,141 23,523 19,749
Add: Facility exit costs - - 3,142 -
 
Non-GAAP adjusted income before provision for income taxes $85,339 $79,327 $335,115 $307,025
 
Provision for income taxes (1) 15,213 22,082 95,139 90,603
 
Non-GAAP adjusted net income (basic and diluted) $70,126 $57,245 $239,976 $216,422
 
Non-GAAP adjusted net income per share:
Basic $0.36 $0.30 $1.24 $1.12
Diluted $0.36 $0.29 $1.23 $1.10
 
 
(1) Provision for income taxes:
Non-GAAP adjusted net income before income tax provision $85,339 $79,327 $335,115 $307,025
Estimated annual effective tax rate 17.8% 27.8% 28.4% 30.2%
Non-GAAP provision for income taxes before discrete tax benefit $15,213 $22,082 $95,139 $92,668
Discrete tax benefit - - - 2,065
Provision for income taxes on Non-GAAP adjusted net income $15,213 $22,082 $95,139 $90,603
 

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 Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
GAAP gross profit $294,281 $252,739 $1,128,217 $954,555
 
Add: Non-cash share-based compensation expense 2,656 2,003 9,433 7,880
Add: Amortization of intangible assets 2,695 670 5,943 3,533
 
Non-GAAP gross profit $299,632 $255,412 $1,143,593 $965,968
 
Non-GAAP gross margin 86% 86% 86% 85%
 
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
GAAP operating expenses $244,049 $204,234 $927,179 $754,642
 
Deduct: Non-cash share-based compensation expense (23,298) (21,554) (89,265) (71,387)
Deduct: Amortization of intangible assets (4,631) (4,471) (17,580) (16,216)
Deduct: Facility exit costs - - (3,142) -
 
Non-GAAP adjusted operating expenses $216,120 $178,209 $817,192 $667,039
 
 
Three Months Ended Twelve Months Ended
February 28, February 29, February 28, February 29,
2013 2012 2013 2012
 
GAAP operating income $50,232 $48,505 $201,038 $199,913
 
Add: Non-cash share-based compensation expense 25,954 23,557 98,698 79,267
Add: Amortization of intangible assets 7,326 5,141 23,523 19,749
Add: Facility exit costs - - 3,142 -
 
Non-GAAP adjusted operating income $83,512 $77,203 $326,401 $298,929
 
Non-GAAP adjusted operating margin 24.0% 26.0% 24.6% 26.4%
 
 
Three Months Ended  
February 28, February 29, Year-Over-Year
2013 2012 Growth Rate
 
GAAP subscription revenue $302,783 $255,167 18.7%
Adjustment for currency impact 2,957 -
Non-GAAP subscription revenue on a constant currency basis $305,740 $255,167 19.8%
 
GAAP training and services revenue $45,101 $41,844 7.8%
Adjustment for currency impact 308 -
Non-GAAP training and services revenue on a constant currency basis $45,409 $41,844 8.5%
 
GAAP total subscription, training and services revenue $347,884 $297,011 17.1%
Adjustment for currency impact 3,265 -
Non-GAAP total subscription, training and services revenue on a constant currency basis $351,149 $297,011 18.2%
 
 
Twelve Months Ended  
February 28, February 29, Year-Over-Year
2013 2012 Growth Rate
 
GAAP subscription revenue $1,148,341 $965,575 18.9%
Adjustment for currency impact 28,220 -
Non-GAAP subscription revenue on a constant currency basis $1,176,561 $965,575 21.9%
 
GAAP training and services revenue $180,476 $167,528 7.7%
Adjustment for currency impact 4,667 -
Non-GAAP training and services revenue on a constant currency basis $185,143 $167,528 10.5%
 
GAAP total subscription, training and services revenue $1,328,817 $1,133,103 17.3%
Adjustment for currency impact 32,887 -
Non-GAAP total subscription, training and services revenue on a constant currency basis $1,361,704 $1,133,103 20.2%




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