Red Hat, Inc. (
RHT)
Q1 2010 Earnings Call Transcript
June 24, 2009 5:00 p.m. ET
Executives
Jim Whitehurst – President & Chief Executive Officer
Charlie Peters – Executive VP & Chief Financial Officer
Tom McCallum – VP Investor Relations
Analysts
Adam Holt – Morgan Stanley
Sarah Friar – Goldman Sachs
Kash Rangan – Merrill Lynch/Banc of America
Tim Klasell – Thomas Weisel Partners
Katherine Egbert – Jeffries& Co
Steve Ashley – Robert W. Baird
Aaron Schwartz – Ladenburg Thalmann
Michael Turits – Raymond James
Brent Williams – The Benchmark Co
Richard Williams – Cross Research
Todd Raker – Deutsche Bank
David Bayer – Cantor Fitzgerald
Trip Chowdhry – Global Equities Research
Robert Breza – RBC Capital Markets
Kevin Buttigieg – FTN Equity Capital Markets
Brad Whitt – Broadpoint AmTech
Brent Thill – Citigroup
Mark Murphy – Piper Jaffray
Nabil Elsheshai – Pacific Crest
Presentation
Operator
Good afternoon. My name is Sarah and I’ll be the conference operator today. At this time I would like to welcome everyone to the Red Hat first quarter 2010 earnings conference call. (Operator instructions) All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. If you’d like to ask a question at that time simply press * then the number 1 on your telephone keypad. If you’d like to withdraw your question please press the pound key. I would now like to turn the call over to Mr. Tom McCallum, VP of Investor Relations; you may begin your conference.
Tom McCallum – Vice President of Investor Relations
Thank you. Hello everyone. Welcome to Red Hat''s earnings call for the first quarter of fiscal 2010. 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 www.redhat.com on the Investor Relations page. Also on this page will be an 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 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 discussed in the company''s most recent Annual Report on Form 10-K filed with the SEC. In addition, any forward-looking statements represent our estimates or view only as of today, June 24, 2009 and these estimates or views 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 the call over to Jim.
Jim Whitehurst – Chief Executive Officer
Thank you Tom and let me add my welcome to all of you joining us on the call today. I’m pleased to announce a strong start to fiscal 2010 as we reported better than expected revenue and EPS in the face of a challenging global economy. A key driver of our continued growth and success, is the fact that we deliver a pure value proposition, helping our enterprise customers carve out costs, while driving innovation in their IT infrastructure. A reflection of the value we deliver is the strength of our renewals. I’m pleased to report that for the fifth consecutive quarter, all of our top 25 deals that were up for renewals not only renewed, but did so at a total value of over 120% of their original value. With overall IT spending down on a year-over-year basis our largest customers continue to renew and spend more with Red Hat as we increasingly become one of their most strategic IT vendors.
Like most companies we remain focused on closely managing our costs in this environment. However we are also investing in R&D and sales to expand our market share and deliver innovation to our customers. Even in this economic environment, CIOs continue to reevaluate their overall IT architectures in order to better take advantage of state of the art solutions such as virtualization, cloud computing and middleware. Importantly over the past few weeks Red Hat has announced several key technology milestones and integrated solutions that further strengthen our unique ability to address each of these strategic IT areas.
In virtualization last week we released the Beta versions of our Red Hat Enterprise Virtualization or REV, product portfolio, including a new standalone hypervisor as well as server and desktop virtualization management products. The REV beta release will involve a collaborative effort where we have engaged several strategic enterprise customers and ecosystem partners across geographies and industry segments. There has been strong interest in the beta program and it is well over subscribed, which I view as a very positive long-term indicator and a reflection of Red Hat’s unique approach in offerings. This is also a clear indication that the market is looking for an alternative to today’s expenses solutions. The REV portfolio is designed to help customers overcome these cost barriers and address performance, security, and scalability. Importantly it also allows customers to leverage the broad Red Hat Enterprise Linux certified ecosystem. Our ecosystem will be a key enabler to permit customers to deploy virtualization more broadly. REV builds upon our widely adopted Red Hat Enterprise Linux operation system foundation which has featured integrated virtualization since 2007 as well as KVM, which is part of the Linux kernel and is expected to be generally available later this year.
And now let me outline why I believe we are well positioned to capitalize on the emerging cloud computing market opportunity. If you look at the top cloud providers today, you’ll find that most of the major ones are running open source, a good number of which are based on Red Hat technology. As the leader in open source technologies, we are focused on breaking barriers, providing wider adoption of the cloud and being a provider of the enabling technologies to our IT customers and to cloud providers. Open source technologies are key to being competitive in the cloud environment. We are excited to embrace a model that can enable both CapEx and OpEx cost reductions. These low cost, high value offerings have always been a core focus for Red Hat. We are pleased with the growing interest from end user customers evaluating how to leverage Red Hat’s suite of solutions in cloud models. We are seeing interest from end user customers who want us to help them architect and build private cloud. The vast majority wants to test the model out internally and position themselves for the ability to use external and public clouds in the future.
Regarding cloud providers, we are looking to expand upon the success we have had with early cloud providers to new emerging ones. Since 2007 we have had a partnership with Amazon web services that continues to grow. Last month we announced a new partnership with Verizon around their recently launched Computing as a Service Solution. Red Hat Enterprise Linux is one of the two operating system environments offered by Verizon. We are hosting an online event called the Open Source Cloud Forum on Wednesday, July 22. Red Hat and other cloud vendors will discuss how open source technologies are uniquely enabling the cloud in an open way. We will update you further on our progress in this fast growing space the industry analysts have predicted will grow to $8 billion in infrastructure software spend by 2012. Finally I want to update you on our growing middleware business.
In middleware we unveiled the JBoss Open Choice application platform strategy. With the expanding and rapidly changing landscape of Java for the enterprise Red Hat’s open choice strategy aims to provide application developers with the ability to choose the framework, language, and programming technologies that best fit the application requirements they are trying to achieve without sacrificing reliability, availability, scalability, or manageability across their projects. Along with the announcement of JBoss Open Choice Strategy, the JBoss Enterprise Middleware portfolio expanded its products to three application server solutions that address common Java application workloads from simple web based applications, to light enriched Java applications, to Java Enterprise addition based applications. Moreover, JBoss platforms now support a variety of popular programming models including the Spring Framework, theme, and Google web toolkit.
In addition in May we had launched JBoss Enterprise Business Rules Management System which is an open source business rule solution that allows customers to reduce development time as they update applications and processes with the latest business rules and policies. With this expansion of our middleware products and capabilities, Red Hat is now one of the most comprehensive Java application server portfolios in the industry which we believe positions us well to continue to gain share in this important segment of the overall IT infrastructure market.
