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Profit Climbs at Red Hat

The company meets analysts' expectations.
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Updated from 4:45 p.m. EDT


Red Hat

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posted second-quarter earnings in line with Wall Street expectations as profit grew 59%.

The Raleigh, N.C., maker of Linux open-source software reported revenue of $127.3 million, nearly 28% over the prior year's quarter of $99.7 million.

Analysts were expecting a top line of $125.1 million, according to Thomson Financial.

Earnings per share grew to 9 cents on net income of $19.1 million, from 5 cents, or $12 million, in the prior year's period.

Excluding items, EPS was 17 cents, in line with expectations.

In a conference call following the report, CFO Charlie Peters said revenue in the third quarter would range between $131 million and $133 million. EPS, less items, is forecast at 18 cents. Analysts were expecting $132.5 million and 18 cents.

The company said operating cash flow, excluding items, was up 43% year on year and 22% sequentially, to $63.7 million, while deferred revenue rose 33% to $377 million.

Renewals have a 22% higher value than the contracts they replace, Peters said, while off-balance sheet backlog grew substantially, by "double-digit millions" during the quarter. Bookings are 27% higher, as of the second quarter.

The pipeline for contracts on the company's JBoss middleware line was higher than at any time since its acquisition in 2006, said Chairman and CEO Matthew Szulik. Red Hat has scored at least one seven-figure JBoss deal in each quarter, he added.

Customers moving from Red Hat's previous server software releases to its latest, RHEL 5, are doing so to take advantage of the upgrade's advanced virtualization capabilities, Peters said.

Szulik said RHEL 5 has an ability to scale more broadly than


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However, Red Hat is a virtualization partner of both VMware and


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, Szulik said. With Intel, Red Hat is working to enable virtualization integration of Red Hat software for both servers and desktops.

Shares of Red Hat were recently up 89 cents, or 4.7%, to $19.78.