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Red Hat Q4 Earnings Call Transcript
Author: Staff
Last Update: 11:33 AM ET March 31 2009

Red Hat, Inc. (RHT)
Q4 2009 Earnings Call Transcript
March 25, 2009, 5:00 p.m. ET


Tom McCallum – Vice President, Investor Relations
James Whitehurst – President & Chief Executive Officer
Charles Peters – Executive Vice President & Chief Financial Officer


Steven Ashley – Robert W. Baird
Apai [ph] for Heather Bellini – UBS
Katherine Egbert – Jefferies & Co
Kash Rangan – Merrill Lynch
Brent Thill – Citigroup
Adam Holt – Morgan Stanley
Mark Murphy – Piper Jaffray
Sarah Friar – Goldman Sachs
John DiFucci – JP Morgan
Nabil Elsheshai – Pacific Crest Securities
Brent Williams – Benchmark Company
Tim Klasell – Thomas Weisel Partners
Richard Williams – Cross Research
Michael Turits – Raymond James



Good afternoon. My name is Shanel (ph) and I will be your conference operator today. At this time I would like to welcome everyone to the Red Hat quarter four 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers'' remarks there will be a question-and-answer session. (Operator instructions) If you’d like to ask a question during this time simply press * then the number 1 on your telephone keypad. If you have already done so please press the pound sign now, then press “*1” again to ensure your question is registered. If you’d like to withdraw your question press the pound key. I would now like to turn the call over to Mr. Tom McCallum, Vice President of Investor Relations for Red Hat, Inc.

Tom McCallum – Vice President of Investor Relations

Thank you operator, hello and welcome to Red Hat''s fiscal fourth quarter and fiscal year end 2009 earnings call. 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 maybe downloaded from on the Investor Relations page.

Also on this page you will be able to find an historic reconciliation schedule of GAAP to non-GAAP financial metrics. Various remarks 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 quarterly report on Form 10-Q filed with the SEC. In addition, any forward-looking statements represent our estimates or views only as of today, March 25, 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 change. Therefore you should not rely on these forward-looking statements as representing our estimates or views as any date subsequent to today.

With that, I''d like to turn the call over to Jim.

James Whitehurst – Chief Executive Officer

Thank you, Tom and let me add my welcome to all of you joining us on today''s call. Fiscal year 2009 marks my first full-year at Red Hat and I am pleased to report that we delivered solid results for both the quarter and full year in spite of the challenging global economy. We saw strong demand for our solutions across all products and geographies. This drove a solid combination of revenue growth, profitability and cash flow. For FY ''09 we grew revenues by 25%, operating income by 24% while generating over 236 million in operating cash flow.

Three factors continue to make Red Hat the open source leader among customers and partners and this is enabling us to outperform many of our peers and competitors. First and foremost is value. Our value proposition continues to resonate with customers who are looking to cut costs and achieve a rapid ROI. Our price performance proposition is highly attractive during good times and we believe it is even more compelling during difficult economic times. While our existing key customers continue to renew and increase the scope of their commitments to Red Hat, we are also seeing increased interest in buying from approximately 40,000 new customers drawn to our high value low cost product this year alone.

Second, our open source development model, we are the only publicly traded pure play open source software company and are recognized as the leader in collaborative software development. We are true to the open source model because we believe it produces better software for our customers. This has firmly established our brand in the IT community and we have earned a high level of confidence with hardware companies and ISPs as evidenced by our ecosystem, which is the largest in the open source industry.

By adhering to the principles of open source development, we have attracted key contributors and partners to participate and have won loyalty from customers and finally, customer led innovation. In this environment, we are seeing 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 own 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. For example, Covad Communications, a leading provider of integrated voice and data communications not only cut costs using our middleware solutions but improve their time-to-market for new products.

Now let me provide you with some highlights from our fourth quarter. We continue to see strong renewals and growth from our top customers. For the quarter, we renewed all of our 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 advanced platform, as nearly half of the top renewal customers upgraded to or increased the number of RHEL advanced platform servers in their Data Centers. For the year we have added 1,000 as we renewed all of the top 100 deals up for renewal an achievement that we believe is only accomplished with the delivery of significant value to our customers.

Our middleware business also delivered solid results in the fourth quarter, continuing to grow in large accounts. In fact, 30% of our largest 30 deals included a middleware component. We also saw momentum continue to build around our SOA solution, which now has over 75 customers. In conjunction with the Red Hat virtual tradeshow during the quarter, the middleware team announced the availability JBoss Enterprise Portal Platform 4.3, an integrated and standard spaced open source platform for hosting and portal based applications and rich web presences. The team also announced an open source project JBoss MASS to focus on the creation of migration tools and a migration resource center to accelerate the adoption of JBoss Enterprise Middleware. This quarter, we also announced plans for advancing virtualization, as one of only two companies in the world with core virtualization technology integrated with a leading enterprise standard operating system. Our virtualization strategy centers on breaking down barriers for customers to deploy virtualized systems, like cost, performance, scalability and security.

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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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