Red Hat Shows a Profit for the First Time

RESEARCH TRIANGLE PARK, N.C.--June 19, 2001-- Red Hat, Inc. the leader in developing, deploying and managing open source solutions, today reported revenue of $25.6 million for the first quarter ended May 31, 2001, an increase of 18% versus the $21.7 million reported for the first quarter of fiscal 2001 and a decrease of 5% over the fourth quarter of fiscal 2001.

The company reported an adjusted net income of $600,000, or break even per share, for the first quarter of fiscal 2002, compared to an adjusted net loss of $3.7 million, or $0.02 per share, for the first quarter of fiscal 2001. On a reported basis, the net loss was $27.6 million, or $0.16 per share, compared with a net loss of $17.4 million, or $0.11 per share in the first quarter of fiscal 2001.

``In an increasingly difficult IT environment, Red Hat delivered a profit and generated positive cash flows for the first time,'' commented Matthew Szulik, President and CEO of Red Hat. ``Companies continue to migrate their platforms to Red Hat Linux and to adopt Open Source solutions for mission critical applications.''

Highlights for the first quarter include:

CUSTOMER WINS / MAJOR DEALS

• Red Hat is providing technical support and Native GNUPro tools across multiple OS platforms to Adobe.
• Red Hat is providing support for Lucent deployment of applications using GNUPro tool suite on many embedded platforms used extensively throughout Lucent's Wide Area Network Switching Products.
• A contract with Vitesse Semiconductor provides Open Source assembler for next generation Denali chip.
• Closed contract with Scan Logic to provide Linux platform solutions for Cypress' newest USB chip used extensively in MP3, PDA, peripherals and telecom devices.
• Completed contract with NEC that provides optimization of GNUPro technology and ultimately Linux for NEC high performance embedded MIPS processor devices.
• Red Hat is providing Horizon P.C.S. with network and workflow assessment for Network Engineering Operations.
• Red Hat signed an agreement with Nortel to provide support and services for their technical workstations used to develop the software that runs their switches and routers. Formerly Nortel relied on proprietary Unix systems. Now Linux combined with Red Hat services provides the same performance and service level at a lower total cost.
• Red Hat successfully handed off the final production version of the Ericsson Webscreen, Ericsson's first mobile Internet Appliance designed in collaboration with Red Hat and using Red Hat Linux.
• Contract signed with BP Oil for support renewal for POS rollout to 2,500 petrol stations across Europe.
• Bauhaus AG, a big DIY retail chain in Europe, set up an Oracle database server environment based on Red Hat Linux in their 125 stores.
• Thrifty Car Rentals has chosen Red Hat Linux to run a mission critical system, including database configuration and reporting systems.
• Red Hat will port GNUPro Development Tools to Altera's Excalibur Products.
• NHL.com has enhanced its infrastructure by using IBM Linux Systems running Red Hat Linux 7.
• In May, Red Hat signed a significant development agreement with ETRI, the national technology research institute of Korea, to cooperatively develop reference platforms for several classes of Post-PC consumer electronics devices. ETRI selected Red Hat because of their leadership in Linux and GNU development tools and especially their leadership in technology and standards for embedded Linux. Through this relationship, Red Hat will further advance the capabilities of Linux as a superior alternative to proprietary embedded offerings and will reinforce their vision of delivering embedded-to-enterprise capabilities.
• Acxiom has selected Red Hat as a one of its strategic technology suppliers for IA-32, IA-64 and IBM zSeries platforms. Acxiom is using Red Hat Linux as a means to decrease cost and improve performance of some of their most important enterprise applications.
• Joint account wins with Dell include:

        --BEA Systems
        --Thomson Financial
        --AT&T
        --Duke Energy
        --SAIC
        --Avery Dennison
        --Veritas Software
        --Columbia University
        --Cornell University
        --UCLA
        --George Washington University
        --Rutgers University

• Hired Paul Cormier, as the Vice President of Engineering. Paul comes to Red Hat with extensive experience delivering technology to enterprise organizations, including vast knowledge relating to the development of scalable, mission-critical security solutions. Prior to Red Hat, Paul served as Senior Vice President of research and development at BindView. Educated in Massachusetts, Paul received his Bachelor of Science degree from Fitchburg State College, majoring in Business Management and Computer Science. He also holds a Master of Science in Software Development and Management from Rochester Institute of Technology.

About Red Hat, Inc.

Red Hat is the leader in developing, deploying and managing solutions built on the benefits of an open source platform. These solutions include an open source product platform that provides the only common, globally available and award-winning Linux operating system from mainframes to embedded devices, in addition to an e-Commerce platform, Database, Secure Web Server, High Availability Server, embedded Linux, eCos, and GNU-based developer toolkit for embedded devices. Red Hat backs up their open source offerings with end-to-end Red Hat Professional Services that include Professional Consulting, Engineering services, Enterprise Support services and Learning services. This is all brought together with Red Hat Network as the Internet-based backbone for deployment and management of products and services for Linux-based infrastructures.

Red Hat is headquartered in Research Triangle Park, N.C. and has offices worldwide. Please visit Red Hat on the Web at www.redhat.com. For investor inquiries, contact Gabriel Szulik at Red Hat, (919) 547-0012.

LINUX is a trademark of Linus Torvalds. RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this press release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release that are not strictly historical statements, including, without limitation, management's plans and objectives for future operations, and management's assessment of market factors, constitute forward-looking statements which involve risks and uncertainties. These risks and uncertainties include, without limitation, reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet, and other risks detailed in Red Hat's filings with the Securities and Exchange Commission, copies of which may be accessed through the SEC's Web site at http://www.sec.gov.

                             RED HAT, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
   (Excludes amortization of goodwill and intangibles, stock based
           compensation, and merger and acquisition costs)


                                               Three Months Ended
                                            May 31,          May 31,
                                             2001             2000

Subscription and services revenue:
 Subscription                          $  11,353,991    $   9,768,364
 Services:
  Network consulting                       5,196,304        5,680,738
  Embedded development services            4,697,325        4,241,916
  Open source services                     4,355,933        2,018,418

  Total subscription and
   services revenue                       25,603,553       21,709,436

Cost of subscription and
 services revenue:
 Subscription                              3,125,563        3,749,793
 Services                                  8,005,907        7,092,774

  Total cost of subscription
   and services revenue                   11,131,470       10,842,567

Gross profit on subscription
 and services revenue                     14,472,083       10,866,869

Hardware resale, net                            --             88,223

Operating expense:
 Sales and marketing                      10,683,600       12,162,715
 Research and development                  4,296,781        3,271,184
 General and administrative                3,370,706        4,666,427

  Total operating expense                 18,351,087       20,100,326

Loss from operations                      (3,879,004)      (9,145,234)

Other interest income (expense), net       4,480,183        5,481,691

Loss before income taxes                     601,179       (3,663,543)
Provision for income taxes                       445           64,414

Net loss                               $     600,734    $  (3,727,957)

Net loss per common share:
 Basic                                 $        0.00    ($       0.02)
 Diluted                               $        0.00    ($       0.02)
Weighted average
 shares outstanding:
 Basic                                   169,002,929      159,463,590
 Diluted                                 169,002,929      159,463,590


                             RED HAT, INC.
                      CONSOLIDATED BALANCE SHEETS


                                ASSETS
                                            May 31,     February 28,
                                             2001           2001
Current assets:
 Cash and cash equivalents             $  72,459,166    $  85,212,830
 Investments in debt and
  equity securities                       47,076,615       62,911,634
 Accounts receivable, net                 20,800,035       25,203,635
 Subcontractor receivable                     74,408        3,441,394
 Inventory                                 1,357,792          739,960
 Prepaid expenses and
  other current assets                     2,287,071        2,171,721

  Total current assets                   144,055,087      179,681,174
Property and equipment, net               15,776,131       14,591,510
Goodwill and intangibles, net            130,871,143      147,396,649
Investments in debt and
 equity securities                       175,051,633      154,556,684
Other assets, net                          5,364,746        9,025,138

  Total assets                         $ 471,118,740    $ 505,251,155



                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                      $   3,909,384    $   9,681,174
 Royalties payable                            30,232             --
 Accrued expenses                         13,273,445       15,915,682
 Deferred revenue                         12,638,837       12,150,549
 Short term payable                             --          2,750,000
 Current portion of
  capital lease obligations                  265,388          193,895

  Total current liabilities               30,117,286       40,691,300
Capital lease obligations                    227,488          277,338
Commitments and contingencies                   --               --
Stockholders' equity:
 Noncontrolling interest in subsidiary        37,810             --
 Preferred stock                                --               --
 Common stock                                 16,983           16,849
 Additional paid-in capital              627,414,567      643,712,385
 Deferred compensation                   (15,438,815)     (36,051,412)
 Accumulated deficit                    (171,148,542)    (143,588,767)
 Accumulated other
  comprehensive income (loss)               (108,037)         193,462

  Total stockholders' equity             440,773,966      464,282,517

  Total liabilities and
   stockholders' equity                $ 471,118,740    $ 505,251,155