This summary is based on the fourth quarter fiscal 2009 earnings call conducted by Red Hat Inc. (RHT) on March 25, 2009.
Management:
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President & CEO: Jim Whitehurst
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Executive Vice President & CFO: Charlie Peters
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Vice President, Investor Relations: Tom McCallum
Key Investors Issues
- Revenue was $166.2 million, 18% higher than the prior year.
- Net income was $16 million, or 8 cents per diluted share, down 27% from $22 million, or 10 cents per diluted share, in the year ago quarter due to higher expenses.
Full Year Highlights:
- Revenue grew to $653 million, a 25% increase.
- Subscription revenue grew to $541 million, an increase of 20%.
- Earnings were $78.7 million or 41 cents a share, an increase of 3% from $76.6 million or 40 cents a share in 2008.
Fourth Quarter Highlights
Bookings mix was 56% from the Channel and 44% came from direct sales versus a 55-45 split in the prior quarter.
- The trend of increasing Channel bookings to the highest percent in nearly two years reflects the progress made on the key initiatives to build out this route.
- Geographically, 57% of bookings came from the Americas, 28% from EMEA, and 15% from APAC.
- There was broad global demand but weak currency rates, particularly in Asia skew the APAC percent down a little.
- On a rolling four quarter average, billings were $188 million, an 18% increase over the prior year fourth quarter average.
Revenue was $166.2 million, inline with guidance, an 18% higher than last year as quarterly subscription revenue was $139 million, up 14% from last year.
- Subscription revenue, which is a recurring revenue stream constituted 84% of total revenue.
- Training and services revenue was $27 million, up 37% as a result of Amentra and growth in the consulting engagements, while the sequential decline related to the holiday season, which was slightly larger than expected.
- Overall gross margin was 86% and subscription gross margin improved 60 basis points over the year to 94%.
- Training and services gross margin improved 280 basis points, driven mainly by better utilization and higher gross margins from the Amentra business.
Operating expense came in at $103 million, less than a $1 million increase from last quarter, a result of a more intense focus on discretionary items and innovative ways to reduce expenses.
- Weak foreign currencies also reduced expenses compared to the prior quarter by approximately $600,000, principally in R&D.
- Operating income was $40 million, increasing 27% compared to last year, representing an operating margin of 23.9%, it is 180 basis points better than last year, and 70 basis points better than last quarter.
- Net income was $16 million, or 8 cents per diluted share, down 27% from $22 million, or 10 cents per diluted share, in the year ago quarter due to higher expenses.
The firm ended the year with $846 million in cash and investments after redeeming all $570 million of convertible bonds and repurchasing 2.9 million shares.
- DSO was 57 days versus 60 days last year, and total deferred revenue at quarter end was $543 million, an increase of $70 million or 15% over the prior yearend.
- The increase was $43 million in current deferred revenue and $27 million in long-term deferred revenue.
- Cash flow from operations was $60 million for the quarter and $236 million for the full year.
Strategic Proposition:
- The firm’s value proposition continues to resonate with customers who are looking to cut costs and achieve a rapid ROI.
- The open source development model is producing better software for customers, firmly establishing the Red Hat brand in the IT community.
- Customer led innovation is resulting in customers who recognize the potential to increase their performance through the use of open source solution.
These are the customers who strategically partner with Red Hat and purchase open source technology to weave it into their value-based business offering.
- In turn this often helps these innovative customers to differentiate themselves from their competition as they leverage the flexibility, scale and security of Red Hat products.
- The firm continues to see strong renewals and growth from the top customers, renewing all of the top 25 deals scheduled to renew this quarter, and they renewed at approximately 132% of the prior year''s value.
- This growth percentage is being driven by further adoption of virtualization using well advance platform, as nearly half of the top renewal customers upgraded to or increased the number of RHEL advanced platform servers.
