This summary is based on the third quarter fiscal 2009 earnings call conducted by Red Hat Inc. (RHT) on December 22, 2008.
Management:
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President & CEO: James Whitehurst
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Exec. VP & CFO: Charles Peters
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VP IR: Tom McCallum
Key Investors Issues
- Net income was $24.3 million or 12 cents a share, up 20% from $20.3 million, or 10 cents a share in 2007.
- Total revenue was $165 million, an increase of 22% from $135 million in the year ago quarter.
- The firm repurchased 2 million of stock.
Year to Date Highlights:
- Revenues were up 27.6% to $486 million.
- Net income came in at $63 million or 33 cents a share, up from $55 million or 28 cents a share in the prior year.
Third Quarter Highlights
Total revenue was $165 million, an increase of 22% from $135 million in the year ago quarter on 17% growth in subscription revenue to $135 million or 82% of total revenue.
- The training and services component of revenue was $30 million, up 52% from last year largely due to the acquisition of [Ementra] and increased demand for training and consulting services.
- Foreign exchange rate changes, as compared to the prior period, reduced quarterly revenues and expenses by $6.9 million and $4.8 million, respectively, resulting in a negative impact on operating income of $2.1 million.
- Customer demand and sales execution remained consistent with the channel continuing the gradual rise seen over the past few quarters and generated 55% of bookings.
The firm had 14 deals at $1 million or more and four deals equal to or over $5 million, emanating from the financial sector, media, technology and government.
- Over 20% of the top deals had a middleware component including two $1 million plus deals that were middleware only.
- Gross margin was 85%, 90 basis points above the prior quarter but slightly lower then last year with the sequential improvement due to continual small improvement in subscription margin as the firm scales and better utilization rates in services.
- Subscription margin was 94% and was 80 basis points better then last quarter due in part to the geographic positioning of support resources and the reduction in US dollar expenses caused by the change in foreign exchange rates.
- Services margin was 42%, up from 36% in the year ago quarter primarily due to better utilization of staff and facilities.
Operating expenses were virtually unchanged despite the acquisition of Qumranet which added approximately $3.8 million principally in R&D expense during the quarter.
- Operating income was $38 million and it produced a 23.2% margin which was well above guidance and up $2.3 million or 120 basis points over the previous quarter.
- Other income net was $12.5 million and included a gain of $4.1 million from convertible debt repurchases.
- Net income was $24.3 million, or 12 cents per diluted share, up 20% compared with $20.3 million, or 10 cents per diluted share, in the year ago quarter due to revenue growth.
Cash and investments were over $1.1 billion as it repurchased $315 million in convertible debt and stock as well as a little over $100 million to acquire Qumranet, partially offsetting this was healthy cash generation from operations.
- It continued to see strength in cash collections as DSOs declined slightly to 56 days compared to 60 days in the second quarter.
- Deferred revenue was $505 million consisting of short-term deferred revenue of $353 million and long-term deferred revenue of $152 million.
Key Accomplishments:
- The firm renewed all of the top 25 deals that were scheduled to renew this quarter and they were renewed at approximately 106% of prior year’s value.
- This included multi year renewals with three large financial services firms.
- Red Hat acquired Qumranet which accelerates its time to market to deliver an expanded virtualization solutions portfolio.
- The integration of Qumranet’s capability has been going very well and is nearly complete and the VDI solution, Solid Ice, is now available for customers as part of an early adopter program.
The company signed an agreement with Fujitsu to provide new Linux support services designed to provide quicker response times over extended support periods for mission critical systems through the Advanced Mission Critical Program.
- The program combines the mainframe expertise of Fujitsu with the enterprise Linux expertise of Red Hat.
- It continues to make good progress on its strategic initiatives including the free to pay initiative.
- In terms of footprint Red Hat now has 65 offices in 28 countries providing customers global sales and support.
- A Red Hat enterprise Linux platform now has more then 2.5 million subscriptions and a comprehensive eco system of over 4,200 hardware certifications and 2,100 [ISP] partners with over 3,000 certified applications.
In terms of products, the firm has expanded beyond the OS and now offer a broad array of open source enterprise infrastructure solutions.
- It has built out a complete managed middleware solutions offering including the EAP, SOA suite, portal and data solutions.
- The firm had key wins for MRG in the financial and government verticals and expect to release the 1.1 version of MRG early next year.
- With the addition of Qumranet, the company now has a virtualization portfolio that enables it to deliver solutions to one of the fastest growing segments of the IT infrastructure.
