Red Hat (RHT)

Q4 2011 Earnings Call

March 23, 2011 5:00 pm ET


Charles Peters - Chief Financial Officer and Executive Vice President

James Whitehurst - Chief Executive Officer, President and Director

Tom McCallum - Investor Relations


Adam Holt - Morgan Stanley

Brad Reback - Oppenheimer & Co. Inc.

Brent Thill - UBS Investment Bank

Matthew Hedberg - RBC Capital Markets, LLC

John DiFucci - JP Morgan Chase & Co

Bhavan Suri - William Blair & Company L.L.C.

Edward Maguire - Credit Agricole Securities (USA) Inc.

Derrick Wood - Pacific Growth Equities

Steven Ashley - Robert W. Baird & Co. Incorporated

Perry Huang

Kevin Buttigieg - Collins Stewart LLC

Michael Turits - Raymond James & Associates, Inc.

Tim Klasell - Stifel, Nicolaus & Co., Inc.

Bradley Whitt - Gleacher & Company, Inc.

Trip Chowdhry - Global Equities Research

Nabil Elsheshai - Pacific Crest Securities, Inc.

Kash Rangan - BofA Merrill Lynch



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Good afternoon, my name is Casey and I will be your conference operator today. At this time, I would like to welcome everyone to the Red Hat Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Mr. Tom McCallum, Vice President of Investor Relations. Sir, you may begin.

Tom McCallum

Thank you, Casey. Hello, everyone and welcome to Red Hat's earnings call for the fourth quarter and full fiscal year 2011. Speakers for today's call will be Jim Whitehurst, President and CEO; and Charlie Peters, Executive Vice President and CFO. Our earnings press release was issued after the market closed today and may be downloaded from on the Investor Relations page. Also on this page, you will be able to find historic reconciliation schedule of GAAP to non-GAAP financial metrics, as well as a schedule on currency rates. Various remarks that we may make about the company's future expectations, plans and prospects, including the statements containing the words believe, anticipate, plan, project, estimate, expect, intend or will, constitute forward-looking statements for the purposes of the Safe Harbor's provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those disclosed in the company's most recent quarterly report on Form 10-Q filed with the SEC, as well as the safe harbor statement in today's press release.

In addition, any forward-looking statement represents our estimates or views only as of today, March 23, 2011 and these views or estimates may change. While the company may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates or views do change and therefore, you should not rely on these forward-looking statements as representing our estimates or views as of any date subsequent to today. With that, I'd like to turn it over to Jim.

James Whitehurst

Thank you, Tom and let you me add my welcome to all of you who are joining us on today's call. Before I begin, I would like to express my deepest sympathies to the people of Japan and our Red Hat Associates and their families. We continue to monitor the situation and are collaborating with our local team on how to best support relief efforts.

Now, I'm pleased to report that our fourth quarter was a strong finish to a record year for Red Hat and above was highlighted by revenue and profitability that were well above our guidance. Here are just a few of our financial highlights. Record billings of $318 million for the quarter, up 31% year-over-year. Q4 revenue was up 25% year-over-year and every quarter this year, we grew faster than 20% on a year-over-year basis. 110 basis point improvement in our operating margin for fiscal 2011, even while we continue to invest aggressively in our key growth initiatives, mainly through hiring in sales and engineering. Finally, we delivered record operating cash flow for the quarter and for the fiscal year.

I want to thank our global team of Red Hat Associates for their strong execution that drove these outstanding results. With record bookings and billings in the fourth quarter, we are on a clear path to becoming the first pure play open source company to achieve $1 billion in revenue during our next fiscal year, a milestone achievement for Red Hat and the open source community.

Red Hat's growth indicates that we are continuing to gain market share. Our growth reflects strong demand from customers who are modernizing their data centers and preparing their infrastructure for cloud computing. The comprehensive portfolio that Red Hat has developed with platform, virtualization and middleware products provides enterprise customers with a foundation to deploy the next-generation IT infrastructure. Red Hat is recognized as one of the leading providers of value among all IT vendors and we believe that we are well-positioned to again deliver double-digit organic growth in fiscal 2012.

Let me now share a few of the business highlights from Q4. First, our platform offerings had a tremendous quarter, with record billings and the highest Q4 growth rate in three years. We experienced broad demand across our top verticals, as well as from new mainstream customers. From a competitive perspective, we won many deals this quarter against other operating systems, including UNIX, Windows, clones and other Linux brands. An interesting example was a win with the Qatar Stock Exchange, where we replaced Windows with RHEL. The customer cited better security and reliability as two of the main considerations. This adds another exchange to the list of the world's equity trading platforms that use Linux.

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