This is a summary of the fourth quarter fiscal 2007 earnings call conducted by Red Hat Inc. (RHT) on March 27, 2008.
Management:
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President, Chief Executive Officer, Director: James M. Whitehurst
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Chief Financial Officer, Executive Vice President: Charles E. Peters Jr.
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Investor Relations: Tom McCallum
Key Investor Issues:
- Revenue rose 30% to $141.5 million, from $111.1 million in the prior year.
- Net income grew to $22 million or 11 cents a share, up 7.3% from $20.5 million or 10 cents a share in 2007.
- Red Hat repurchased 3.7 million shares of common stock for $66 million under the $250 million stock repurchase program.
Full Year Highlights
- Revenues grew by 31% to $523 million.
- Net income was up 18% to $76.7 million or 40 cents a share.
- The firm acquired Amentra, a leading provider of systems integration and consulting services around middleware, service-oriented architecture, and open source solutions.
Fourth Quarter Highlights:
Revenue was $141.5 million, an increase of 30% from $111 million in the prior year as the firm continued progress towards transforming the business to support growth to the $1 billion plus level of revenue in the next several years.
- In one-third of the top 25 deals in the U.S., JBoss was an important component and three deals of $1 million or more were exclusively JBoss.
- Subscription revenue continued to grow rapidly to $121.9 million, or 5% growth sequentially.
- The training and services component of revenue was $19.6 million, up 29% from last year and in line with the third quarter strong performance.
Bookings and billings were strong, as the firm booked in excess of $200 million and bookings to be billed in the future now exceed $125 million.
-These bookings produce billings of $186 million compared to $172 million in the third quarter, or 8% sequential growth and 35% growth compared to last year.
- On a non-GAAP basis, excluding stock compensation expense, overall gross margin was 85%, slightly higher than last quarter and last year.
- Subscription gross margin was 93%, in line with last year and services gross margin improved 400 basis points.
- Non-GAAP operating expense was $92.5 million, up $6.4 million from last quarter, attributable principally to spending in sales and marketing.
Net income grew to $22 million or 11 cents a share, up 7.3% from $20.5 million or 10 cents a share in 2007, producing an operating margin of 20%, compared to $24.6 million and 22% in the year-ago quarter.
- Other income net, attributable primarily to investment income, was $16.7 million, including a one-time gain from the sale of an investment of $4.7 million.
- Red Hat ended the year with over $1.3 billion in cash and investments, after purchasing 3.7 million shares of common stock for $66 million under the $250 million stock repurchase program.
- The firm exited auction rate securities, asset-backed securities, and mortgage backed securities over the past six months.
Total deferred revenue at quarter end was $473 million, an increase of 40% over the prior year-end.
- The increase was $37 million in current deferred revenue and $13 million in long-term deferred revenue.
- The non-GAAP cash flow from operations excluding the reclassification of excess tax benefits from share-based compensation arrangements was $72 million.
- GAAP cash flow from operations was $55 million versus $46 million in the fourth quarter of last year.
Fiscal 2008 Outlook:
-First quarter revenue is estimated to be between $152 million to $154 million, including $5 million from the partial quarter ownership of Amentra.
- Operating margin is estimated to be 19%, principally due to higher IT and systems transformation expenses.
- Other income net is estimated around $9.4 million, and non-GAAP EPS is estimated to be approximately 18 cents.
Total revenue for 2008 is forecasted to be in the range of $665 million to $680 million, representing an annual growth rate upwards to 30%.
- Non-GAAP operating income for the year is expected to grow at approximately the same rate as revenue.
- Estimates are that diluted non-GAAP EPS will be in the range of 78 cents to 82 cents per share for the full year fiscal 2009.
Fiscal Year 2009 Outlook
- The firm''s goal is to drive high revenue growth for the next several years.
- The top priorities for 2009 are to focus customers on the fast-growing data center infrastructure solution.
- Second is to continue to invest in infrastructure to allow the firm to become continually more efficient as it scales to be a multi-billion dollar business.
As well as building the partner ecosystem, including channel partners, major ISVs, and tier one systems integrators.
- On a GAAP basis, stock compensation expense will be approximately $11 million per quarter in fiscal 2009.
- GAAP operating cash flow for the full year of between $240 million and $250 million is anticipated, or up to a 25% increase compared to GAAP operating cash flow of $203 million in fiscal year 2008.
