- First quarter revenue of $568 million,
up 18% year-over-year
- First quarter subscription revenue of
$502 million, up 18% year-over-year
- First quarter Application
Development-related and other emerging technologies subscription
revenue of $98 million, up 39% year-over-year
- Total deferred revenue balance of $1.69
billion, up 18% 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 2017 ended May 31, 2016.
“Digital transformation and cloud computing are changing the way
companies compete in virtually every industry today. Organizations
that rapidly embrace agile IT technology are succeeding as industry
innovation accelerates around them. Our open source-based
technologies are helping customers capture the business benefits
associated with this rapid rate of change,” stated Jim Whitehurst,
President and Chief Executive Officer of Red Hat. “Strong
adoption of our technologies has been reflected in our total
revenue growth including 18% year-over-year growth in Q1 that was
driven in part by 39% growth of our Application Development-related
and emerging technologies.”
“The first quarter was a strong start to FY17,” stated Frank
Calderoni, Executive Vice President, Operations and Chief Financial
Officer of Red Hat. “The momentum of our business and solid
execution by our sales team was evidenced by the record number of
deals over $1 million closed in Q1, up 50% compared to the year-ago
period.”
Revenue: Total revenue for the quarter was $568 million,
up 18% in U.S. dollars year-over-year and as measured in constant
currency. Constant currency references in this release are detailed
in the tables below. Subscription revenue for the quarter was $502
million, up 18% in U.S. dollars year-over-year and as measured in
constant currency. Subscription revenue in the quarter was 88% of
total revenue.
Subscription Revenue Breakout: Subscription revenue from
Infrastructure-related offerings for the quarter was $403 million,
an increase of 14% in U.S. dollars year-over-year and 13% measured
in constant currency. Subscription revenue from Application
Development-related and other emerging technologies offerings for
the quarter was $98 million, an increase of 39% in U.S. dollars
year-over-year and as measured in constant currency.
Operating Income: GAAP operating income for the quarter
was $75 million, up 6% year-over-year. After adjusting for non-cash
share-based compensation expense and amortization of intangible
assets, non-GAAP operating income for the first quarter was $124
million, up 9% year-over-year. Non-GAAP references in this release
are detailed in the tables below. For the first quarter, GAAP
operating margin was 13.3% and non-GAAP operating margin was
21.8%.
Net Income: GAAP net income for the quarter was $61
million, or $0.33 per diluted share, compared with $48 million, or
$0.26 per diluted share, in the year-ago quarter. During the first
quarter of fiscal year 2017, GAAP net income and earnings per
diluted share benefited by $8 million and $0.04, respectively, from
the early adoption of Accounting Standards Update 2016-09 ("ASU
2016-09"), which affects, among other items, the accounting for
excess tax benefits from share-based payment arrangements. Under
ASU 2016-09, excess tax benefits are no longer recognized as
additional paid-in capital but instead recognized as a reduction to
income tax expense in the income statement. (1)
After adjusting for non-cash share-based compensation expense
and excess tax benefits related to share-based payments,
amortization of intangible assets, and non-cash interest expense
related to the debt discount, non-GAAP net income for the quarter
was $92 million, or $0.50 per diluted share, as compared to $81
million, or $0.44 per diluted share, in the year-ago quarter.
Non-GAAP diluted weighted average shares outstanding excludes any
dilution resulting from the convertible notes because any potential
dilution is expected to be offset by our convertible note hedge
transactions. In the first quarter of the prior fiscal year, both
GAAP and non-GAAP earnings per diluted share benefited from the
one-time earned revenue adjustment of approximately $0.02.
Cash: Operating cash flow was $232 million for the first
quarter, an increase of 8% on a year-over-year basis. The company’s
consolidated statements of cash flows are presented including the
adoption of ASU 2016-09 which requires excess tax benefits from
share-based payment arrangements be classified along with other
income tax cash flows as an operating activity rather than a
financing activity. We elected to apply the ASU 2016-09 amendment
related to classification of excess tax benefits on the statement
of cash flows using a retrospective transition method. As a result,
$6 million of excess tax benefits previously presented as a
financing source of cash for first quarter of the prior fiscal year
are now presented as an operating cash flow.
Total cash, cash equivalents and investments as of May 31,
2016 was $2.12 billion after repurchasing approximately $66
million, or approximately 900 thousand shares, of common stock in
the first quarter. As of May 31, 2016, the company had used
approximately $329 million of the $500 million stock repurchase
program.
Deferred revenue: At the end of the first quarter, the
company’s total deferred revenue balance was $1.69 billion, an
increase of 18% year-over-year. The full year positive impact to
total deferred revenue from changes in foreign exchange rates was
$10 million year-over-year. On a constant currency basis, total
deferred revenue would have been up 17% year-over-year.
Outlook: Red Hat’s outlook assumes current business
conditions, current foreign currency exchange rates and the impact
of the anticipated acquisition of 3scale, Inc., announced today in
a separate press release. For the full year:
- Revenue is expected to be $2.380
billion to $2.420 billion in U.S. dollars.
- GAAP operating margin is expected to be
approximately 14.3% and non-GAAP operating margin is expected to be
approximately 23.0%.
- Fully-diluted GAAP earnings per share
(EPS) is expected to be approximately $1.37 to $1.41 per share.
Fully-diluted non-GAAP EPS is expected to be approximately $2.19 to
$2.23 per share. Both GAAP and non-GAAP EPS assume a $1 million to
$2 million per quarter forecast for other income. Both GAAP and
non-GAAP EPS also assume an estimated annual effective tax rate of
27% before discrete tax items and 184 million fully-diluted shares
outstanding.
- Operating cash flow guidance range is
expected to be approximately $800 million to $820 million.
For the second quarter:
- Revenue guidance is $587 million to
$593 million.
- GAAP operating margin is expected to be
approximately 13.4% and non-GAAP operating margin is expected to be
approximately 22.8%.
- Fully-diluted GAAP EPS is expected to
be approximately $0.31 per share. Fully-diluted non-GAAP EPS is
expected to be approximately $0.54. Both GAAP and non-GAAP EPS
assume a $1 million to $2 million forecast for other income. Both
GAAP and non-GAAP EPS also assume an estimated annual effective tax
rate of 27% before discrete tax items and 184 million fully-diluted
shares outstanding.
GAAP to non-GAAP reconciliation:
Full year non-GAAP operating margin guidance is derived by
subtracting the estimated full year impact of non-cash share-based
compensation expense of approximately $180 million, amortization of
intangible assets of approximately $29 million, and transaction
costs related to business combinations of less than $1 million.
Full year fully-diluted non-GAAP EPS guidance is derived by
subtracting the expenses listed in the previous sentence and the
full year impact of non-cash interest expense related to the debt
discount of approximately $19 million and an estimated annual
effective tax rate of 27% before discrete tax items. Additionally,
full year fully-diluted non-GAAP EPS excludes approximately $15
million of discrete tax benefits related to share-based
compensation that are included in full year fully-diluted GAAP
EPS.
Second quarter non-GAAP operating margin guidance is derived by
subtracting the estimated impact of non-cash share-based
compensation expense of approximately $47 million, amortization of
intangible assets of approximately $8 million, and transaction
costs related to business combinations of less than $1 million.
Second quarter fully-diluted non-GAAP EPS guidance is derived by
subtracting the expenses listed in the previous sentence and
non-cash interest expense related to the debt discount of
approximately $5 million and an estimated annual effective tax rate
of 27% before discrete tax items. Additionally, second quarter
fully-diluted non-GAAP EPS excludes approximately $1 million of
discrete tax benefits related to share-based compensation that are
included in second quarter fully-diluted GAAP EPS.
Webcast and Website Information
A live webcast of Red Hat's results will begin at 5:00 pm ET
today. The webcast, in addition to a copy of our prepared remarks
and slides containing financial highlights and supplemental
metrics, 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. 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 open source software
solutions, using a community-powered approach to provide 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 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 the ability of the Company to compete effectively;
the integration of acquisitions and the ability to market
successfully acquired technologies and products; 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 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; 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 Annual Report
on Form 10-K (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 the Shadowman logo 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.
______________
(1) Excess tax benefits from share-based payment arrangements
are considered discrete tax items and as a result are not included
in our fiscal year 2017 estimated annual effective tax rate of 27%.
Additionally, ASU 2016-09 requires that recognition of excess tax
benefits in the income statement be adopted and applied on a
prospective basis and, as a result, we have not adjusted fiscal
year 2016 tax expense for the $6 million that was recognized as
additional paid-in capital during the first quarter of fiscal year
2016.
RED HAT, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) (In thousands - except per share
amounts)
Three Months
Ended May 31, May 31, 2016
2015 Revenue: Subscriptions $ 501,665 $ 424,793
Training and services 66,234 56,208
Total subscription, training and services revenue
567,899 481,001 Cost of revenue:
Subscriptions 36,545 29,846 Training and services
47,503 41,551 Total cost of
subscription, training and services revenue 84,048
71,397 Total gross profit 483,851
409,604 Operating expense: Sales and marketing 243,248
198,872 Research and development 115,016 97,431 General and
administrative 50,224 42,371
Total operating expense 408,488 338,674
Income from operations 75,363 70,930 Interest income
3,430 2,715 Interest expense 5,887 5,715 Other income (expense),
net (553 ) (203 ) Income before
provision for income taxes 72,353 67,727 Provision for income taxes
(1) 11,169 19,641 Net income $
61,184 $ 48,086 Net income per share: Basic $
0.34 $ 0.26 Diluted $ 0.33 $ 0.26 Weighted average shares
outstanding: Basic 181,168 183,130 Diluted 184,187 186,175
(1) Provision for income taxes for the three months ended May
31, 2016 includes the impact of early adoption of ASU 2016-09. ASU
2016-09 requires that the amendment related to accounting for
income taxes be adopted on a prospective basis. Accordingly, the
provision for income taxes for the three months ended May 31, 2015
has not been adjusted. The provision for income taxes for the three
months ended May 31, 2016 includes the effect of a discrete tax
benefit of $7.9 million related to excess tax benefits from
share-based compensation.
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS May
31, February 29, 2016 2016
(1) Current assets: Cash and cash equivalents $
1,031,565 $ 927,778 Investments in debt and equity securities
364,850 281,142 Accounts receivable, net 326,334 509,715 Prepaid
expenses 159,829 150,877 Other current assets 1,375
2,921 Total current assets 1,883,953 1,872,433
Property and equipment, net 168,015 166,886 Goodwill
1,029,636 1,027,277 Identifiable intangibles, net 140,704 146,071
Investments in debt securities 723,461 786,470 Deferred tax assets,
net 116,393 111,456 Other assets, net 50,119
44,506 Total assets $ 4,112,281 $ 4,155,099
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable and accrued expenses $ 251,401 $
284,802 Deferred revenue 1,251,096 1,272,908 Other current
obligations 1,980 1,467 Total
current liabilities 1,504,477 1,559,177 Convertible notes
729,307 723,942 Long term deferred revenue 441,060 449,636 Other
long term obligations 88,102 87,912 Stockholders' equity: Common
stock 24 23 Additional paid-in capital 2,176,208 2,162,264 Retained
earnings 1,160,472 1,099,738 Treasury stock, at cost (1,919,622 )
(1,853,144 ) Accumulated other comprehensive loss (67,747 )
(74,449 ) Total stockholders' equity 1,349,335
1,334,432 Total liabilities and
stockholders' equity $ 4,112,281 $ 4,155,099
(1) Derived from audited financial statements
RED HAT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended May
31, May 31, 2016 2015
Cash flows from operating activities: Net income $ 61,184 $ 48,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,702 18,547 Share-based
compensation expense 41,275 36,522 Deferred income taxes (2,152 )
1,914 Excess tax benefits from share-based payment arrangements (1)
7,950 6,419 Net amortization of bond premium on available-for-sale
debt securities 3,540 2,597 Accretion of debt discount and
amortization of debt issuance costs 5,365 5,195 Other (765 ) 830
Changes in operating assets and liabilities net of effects of
acquisitions: Accounts receivable 190,330 179,387 Prepaid expenses
(9,373 ) (427 ) Accounts payable and accrued expenses (38,136 )
(52,346 ) Deferred revenue (46,093 ) (31,562 ) Other (1,530
) 15 Net cash provided by operating activities
232,297 215,177 Cash flows from
investing activities: Purchase of available-for-sale debt
securities (134,601 ) (406,211 ) Proceeds from sales and maturities
of available-for-sale debt securities 117,182 182,583 Purchase of
other intangible assets (2,868 ) (3,929 ) Purchase of property and
equipment (17,653 ) (10,696 ) Other (111 ) (2,000 )
Net cash used in investing activities (38,051 )
(240,253 ) Cash flows from financing activities:
Proceeds from exercise of common stock options 1,379 2,109 Purchase
of treasury stock (66,478 ) - Payments related to net settlement of
employee share-based compensation awards (31,079 ) (25,211 )
Payments on other borrowings 56 (351 )
Net cash used in financing activities (96,122 )
(23,453 ) Effect of foreign currency exchange rates on cash
and cash equivalents 5,663 (8,022 ) Net
increase (decrease) in cash and cash equivalents 103,787 (56,551 )
Cash and cash equivalents at beginning of the period 927,778
1,047,473 Cash and cash equivalents at
end of period $ 1,031,565 $ 990,922
(1) Includes impact of early adoption of ASU 2016-09. Under ASU
2016-09 excess tax benefits from share-based payment arrangements
are classified as an operating activity rather than a financing
activity.
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 May 31, May 31, 2016
2015 Cost of revenue $ 4,305 $ 3,727 Sales and
marketing 18,440 15,412 Research and development 12,002 10,874
General and administration 6,528 6,509
Total share-based compensation expense $ 41,275 $ 36,522
Amortization of intangible assets expense
included in Consolidated Statements of Operations:
Three
Months Ended May 31, May 31, 2016
2015 Cost of revenue $ 3,623 $ 2,573 Sales and
marketing 1,916 2,005 Research and development 34 250 General and
administration 1,753 1,052 Total
amortization of intangible assets expense $ 7,326 $ 5,880
Non-cash interest expense related to the debt
discount included in Consolidated Statements of Operations:
Three Months Ended May 31, May 31, 2016
2015 Total non-cash interest expense related to the
debt discount $ 4,731 $ 4,599
Three
Months Ended May 31, May 31, 2016
2015 GAAP net income $ 61,184 $ 48,086 GAAP
provision for income taxes 11,169 19,641
GAAP income before provision for income taxes $
72,353 $ 67,727 Add: Non-cash share-based compensation
expense 41,275 36,522 Add: Amortization of intangible assets 7,326
5,880 Add: Non-cash interest expense related to the debt discount
4,731 4,599 Non-GAAP adjusted
income before provision for income taxes $ 125,685 $ 114,728
Non-GAAP provision for income taxes (1) 33,507
33,271 Non-GAAP adjusted net income
(basic and diluted) $ 92,178 $ 81,457 Non-GAAP
adjusted diluted weighted average shares outstanding: GAAP diluted
weighted average shares outstanding 184,187 186,175 Dilution offset
from convertible note hedge transactions - (51
) Non-GAAP diluted weighted average shares outstanding 184,187
186,124 Non-GAAP adjusted net income per share: Basic $ 0.51
$ 0.44 Diluted $ 0.50 $ 0.44 (1) Non-GAAP provision
for income taxes: Non-GAAP adjusted income before provision for
income taxes $ 125,685 $ 114,728 GAAP estimated annual effective
tax rate 27.0 % 29.0 % Provision for income taxes on
Non-GAAP adjusted net income before discrete tax benefits $ 33,935
$ 33,271 Discrete tax benefits, excluding discrete benefits related
to share-based compensation (428 ) - Provision
for income taxes on Non-GAAP adjusted net income excluding discrete
benefits related to share-based compensation $ 33,507 $
33,271
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 May 31, May 31,
2016 2015 GAAP gross profit $ 483,851 $
409,604 Add: Non-cash share-based compensation expense 4,305
3,727 Add: Amortization of intangible assets 3,623
2,573 Non-GAAP gross profit $ 491,779 $
415,904 Non-GAAP gross margin 86.6 % 86.5 %
Three Months Ended May 31, May 31,
2016 2015 GAAP operating expenses $ 408,488 $
338,674 Deduct: Non-cash share-based compensation expense
(36,970 ) (32,795 ) Deduct: Amortization of intangible assets
(3,703 ) (3,307 ) Non-GAAP adjusted operating
expenses $ 367,815 $ 302,572
Three
Months Ended May 31, May 31, 2016
2015 GAAP operating income $ 75,363 $ 70,930
Add: Non-cash share-based compensation expense 41,275 36,522 Add:
Amortization of intangible assets 7,326 5,880
Non-GAAP adjusted operating income $ 123,964 $
113,332 Non-GAAP adjusted operating margin 21.8 %
23.6 %
Three Months Ended May
31, May 31, Year-Over-Year 2016
2015 Growth Rate GAAP subscription revenue by
offering type Infrastructure-related offerings $ 403,182 $ 354,018
13.9 % Adjustment for currency impact (1,915 ) -
Non-GAAP Infrastructure-related subscription revenue on a
constant currency basis $ 401,267 $ 354,018 13.3 %
Application development-related and other emerging technology
offerings $ 98,483 $ 70,775 39.1 % Adjustment for currency impact
(296 ) - Non-GAAP Application
development-related and other emerging technology subscription
revenue on a constant currency basis $ 98,187 $ 70,775 38.7 %
GAAP subscription revenue 501,665 424,793 18.1 % Adjustment
for currency impact (2,211 ) - Non-GAAP
subscription revenue on a constant currency basis $ 499,454 $
424,793 17.6 % GAAP training and services revenue $ 66,234 $
56,208 17.8 % Adjustment for currency impact 511
- Non-GAAP training and services revenue on a
constant currency basis $ 66,745 $ 56,208 18.7 % GAAP total
subscription, training and services revenue $ 567,899 $ 481,001
18.1 % Adjustment for currency impact (1,700 ) -
Non-GAAP total subscription, training and services revenue
on a constant currency basis $ 566,199 $ 481,001 17.7
%
RED HAT, INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
(In thousands - except per share amounts)
Change in deferred revenue
balances
Current DeferredRevenue
Long
TermDeferredRevenue
Total DeferredRevenue
Balance at May 31, 2015 $ 1,066,254 $ 369,865 $ 1,436,119
Constant currency change in deferred revenue (1) 193,652 52,664
246,316 Impact from foreign currency translation (8,810 )
18,531 9,721 Balance at May 31, 2016 $
1,251,096 $ 441,060 $ 1,692,156 Year-over-year growth rate
17.3 % 19.2 % 17.8 % Year-over-year growth rate on a constant
currency basis 18.2 % 14.2 % 17.2 % (1) Change in deferred
revenue includes approximately $0.4 million acquired as part of
business combinations.
Revenue growth by
geographical segment Americas EMEA APAC
Consolidated Total revenue for the three months ended
May 31, 2016 $ 365,723 $ 124,299 $ 77,877 $ 567,899 Adjustment for
currency impact 2,977 (3,643 ) (1,034 )
(1,700 ) Total revenue on a constant currency basis for the
three months ended May 31, 2016 $ 368,700 $ 120,656 $ 76,843 $
566,199 Total revenue for the three months ended May 31,
2015 $ 321,833 $ 97,473 $ 61,695 $ 481,001 Year-over-year
growth rate 13.6 % 27.5 % 26.2 % 18.1 % Year-over-year growth rate
on a constant currency basis 14.6 % 23.8 % 24.6 % 17.7 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160622006292/en/
Red Hat, Inc.Media Contact:Stephanie Wonderlick,
571-421-8169swonderl@redhat.comorInvestor Relations:Tom
McCallum, 919-754-4630tmccallum@redhat.com
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