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Red Hat Announces Q2 Results: Break Even Per Share With Net Loss of $100,000

Sep 18, 2001, 23:55 (12 Talkback[s])

RESEARCH TRIANGLE PARK, N.C.--Sept. 18, 2001-- Red Hat, Inc. (NASDAQ:RHAT) , the leader in developing, deploying and managing open source solutions, today reported revenue of $21.1 million for the second quarter ended August 31, 2001, a decrease of 15% versus the $25.0 million reported for the second quarter of fiscal 2001 and a decrease of 17% over the first quarter of fiscal 2002.

The company reported an adjusted net loss of $100,000, or break even per share, for the second quarter of fiscal 2002, compared to an adjusted net loss of $4.0 million, or $0.02 per share, for the second quarter of fiscal 2001. On a reported basis, the net loss was $55.3 million, or $0.33 per share, compared with a net loss of $20.0 million, or $0.12 per share in fiscal 2001.

During the quarter, the company restructured its operations to focus on two primary areas, UNIX to Linux migration opportunities in enterprises and delivering complete solutions for the embedded system market. This restructuring resulted in the company incurring a charge of $37.2 million, which was comprised of the impairment of $33.8 million in the carrying value of goodwill and intangibles related to acquisitions made in prior periods and $3.4 million in severance related expenses.

"Our continued emphasis on improving the quarter to quarter operating performance of Red Hat is evident even as we faced a shortfall in sales," stated Kevin Thompson, Executive Vice President and Chief Financial Officer.

Highlights for the second quarter include:

CUSTOMER WINS / MAJOR DEALS

--Red Hat is assisting a major financial institution with migration of its network infrastructure from Sun Solaris to Red Hat Linux

-- Amazon is expanding the use of Red Hat Linux and Stronghold for secure eCommerce transaction capabilities for online customers

-- Intel signed a comprehensive multi-year agreement where Red Hat will update and enhance GNU/Linux technologies for the Intel Xscale microprocessor family

-- Red Hat signed an Embedded Technology agreement for NEC's MIPS embedded processor devices

-- Juniper Networks has engaged Red Hat for the development and deployment of Juniper Equipment using Red Hat GNU/Linux technology

-- Nintendo is using Red Hat technologies in the development of Nintendo gaming technology

-- Red Hat is working with Motorola to enhance the GNU/Linux technology for Motorola's PowerPC architecture

-- Red Hat is providing advanced GNUPro technology for Sandcraft's 64-bit MIPS processor family

-- Red Hat has provided GE Transportation with Internetworking, Enterprise Systems Management, and Telco Design review in GE's moving of a server farm from Florida to Cincinnati

-- Red Hat has provided Verisign with Checkpoint Firewall Administration for Verisign's Solaris machines

-- Compagnie Generale de Geophysique, the worldwide supplier of products and services to oil/gas industry, has upgraded Houston processing center with hundreds of Dell servers running Red Hat Linux

-- Wincor Nixdorf has entered in a partnership with Red Hat to use Red Hat Linux as the platform for Wincor Nixdorf's POSition and Calypso store solutions, as well as customer owned solutions. Customers already engaged include:

-- Carrefour, with over 9,000 store locations, will launch new solution in Switzerland and Slovakia

-- Schleswig Holstein eG, co-op, will have all 1,000 POS systems installed with Calypso on Red Hat Linux by end of year

-- DIA, the largest Spanish discount chain, migrating its own solution to run on Red Hat Linux

OTHER ANNOUNCEMENTS

-- Red Hat announced the Red Hat Database, an open source database solution based on PostgreSQL 7.1 and optimized with RH Linux 7.1

-- Red Hat launched its Open Source Consulting Practice, which is a suite of consulting services to help companies plan and migrate key elements of their computing infrastructure to Linux and other open source solutions

About Red Hat, Inc.
Red Hat is the leader in developing, deploying and managing solutions built on the benefits of an open source platform. The open source platform includes the Red Hat Linux operating system for mainframes, servers, workstations and embedded devices, GNUPro tools for developers, database, e-Commerce, secure Web server, high availability server and run-time solutions like eCos and RedBoot. For this platform, Red Hat provides end-to-end professional services including Professional Consulting, Engineering services, Enterprise Support services, and Global Learning services. Red Hat Network is the premier Internet based service that simplifies and integrates the deployment and management of these offers. More information about Red Hat is available at www.redhat.com. Red Hat is headquartered in Research Triangle Park, N.C. and has offices worldwide.

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, Red Hat's ability to effectively integrate the operations of Planning Technologies; Red Hat's ability to retain Planning Technologies' traditional customers; Planning Technologies' inexperience in offering professional consulting services to Linux customers; Red Hat's lack of experience in managing a large, geographically dispersed, professional services organization; 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, merger, acquisitions and other costs,
                      and restructuring charges)
               (In thousands - except per share amounts)

                               Three Months Ended   Six Months Ended
                                Aug. 31,  Aug. 31,  Aug. 31,  Aug. 31,
                                  2001      2000      2001      2000
                                   (Unaudited)         (Unaudited)
Subscription and 
 services revenue:
   Subscription                  $9,995   $10,690   $21,349   $20,459
   Services:
    Network consulting            3,682     6,461     8,878    12,142
    Embedded development
     services                     3,538     4,436     8,236     8,678
    Open source services          3,910     3,367     8,265     5,385

    Total subscription
     and services revenue        21,125    24,954    46,728    46,664

Cost of subscription and
 services revenue:
   Subscription                   2,472     3,611     5,597     7,361
   Services                       5,526     8,803    13,531    15,896

    Total cost of subscription
     and services revenue         7,998    12,414    19,128    23,257

Gross profit on subscription
 and services revenue            13,127    12,540    27,600    23,407

Hardware resale, net               --           8      --          96

Operating expense:
   Sales and marketing            9,329    11,656    20,013    23,818
   Research and development       4,213     3,672     8,510     6,943
   General and administrative     3,662     6,785     7,033    11,451

    Total operating expense      17,204    22,113    35,556    42,212

Loss from operations             (4,077)   (9,565)   (7,956)  (18,709)

Other interest income
 (expense), net                   4,045     5,624     8,525    11,105

Loss before income taxes            (32)   (3,941)      569    (7,604)
Provision for income taxes           61        35        61        99

Net loss                           $(93)  $(3,976)     $508   $(7,703)

Net loss per common share:
       Basic                     ($0.00)   ($0.02)    $0.00    ($0.05)
       Diluted                   ($0.00)   ($0.02)    $0.00    ($0.05)

Weighted average shares
 outstanding:
       Basic                    169,968   163,976   169,486   161,720
       Diluted                  169,968   163,976   169,486   161,720


                           RED HAT, INC.
               CONSOLIDATED STATEMENTS OF OPERATIONS
             (In thousands - except per share amounts)


                               Three Months Ended    Six Months Ended
                                Aug. 31,  Aug. 31,  Aug. 31,  Aug. 31,
                                  2001      2000      2001      2000
                                   (Unaudited)         (Unaudited)
Subscription and 
 services revenue:
   Subscription                  $9,995   $10,690   $21,349   $20,459
   Services:
    Network consulting            3,682     6,461     8,878    12,142
    Embedded development
     services                     3,538     4,436     8,236     8,678
    Open source services          3,910     3,367     8,265     5,385

    Total subscription and
     services revenue            21,125    24,954    46,728    46,664

Cost of subscription and
 services revenue:
   Subscription                   2,472     3,611     5,597     7,361
   Services                       5,526     8,803    13,531    15,896

    Total cost of subscription
     and services revenue         7,998    12,414    19,128    23,257

Gross profit on subscription
 and services revenue            13,127    12,540    27,600    23,407

Hardware resale, net               --           8      --          96

Operating expense:
   Sales and marketing            9,329    11,656    20,013    23,818
   Research and development       4,213     3,672     8,510     6,943
   General and administrative     3,662     6,785     7,033    11,451
   Amortization of
    goodwill and intangibles     14,911    11,245    69,414    17,955
   Stock-based compensation       3,171     3,501     6,847     7,127
   Merger, acquisitions and other  --       1,284     7,156     4,643
   Restructuring charges         37,175      --        --        --

    Total operating expense      72,461    38,143   118,973    71,937

Loss from operations            (59,334)  (25,595)  (91,373)  (48,434)

Other interest income
 (expense), net                   4,045     5,624     8,525    11,105

Loss before income taxes        (55,289)  (19,971)  (82,848)  (37,329)
Provision for income taxes           61        35        61        99

Net loss                       $(55,350) $(20,006) $(82,909) $(37,428)

Net loss per common share:
       Basic                     ($0.33)   ($0.12)   ($0.49)   ($0.23)
       Diluted                   ($0.33)   ($0.12)   ($0.49)   ($0.23)
Weighted average
 shares outstanding:
       Basic                    169,968   163,976   169,486   161,720
       Diluted                  169,968   163,976   169,486   161,720


                            RED HAT, INC.
                     CONSOLIDATED BALANCE SHEETS
                            (In thousands)

                                ASSETS
                                              August, 31  February 28,
                                                 2001         2001

Assets:
   Cash and investments in debt and
    equity securities                         $ 299,913    $ 302,681
   Accounts receivable, net                      19,207       25,204
   Subcontractor receivable                         557        3,441
   Inventory                                        774          740
   Prepaid expenses and other assets              8,686       11,197
   Property and equipment, net                   16,741       14,591
   Goodwill and intangibles, net                 82,369      147,397

       Total assets                           $ 428,247    $ 505,251


               LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Accounts payable                           $   8,316    $   9,681
   Accrued expenses                               9,892       15,916
   Deferred revenue                               9,425       12,151
   Financing obligations                         11,153        3,221

       Total liabilities                         38,786       40,969
Commitments and contingencies                        --           --
Stockholders' equity:
   Noncontrolling interest in subsidiary             63           --
   Preferred stock                                   --           --
   Common stock                                      17           17
   Additional paid-in capital                   627,220      643,712
   Deferred compensation                        (11,610)     (36,051)
   Accumulated deficit                         (226,498)    (143,589)
   Accumulated other comprehensive 
    income (loss)                                   269          193

       Total stockholders' equity               389,461      464,282

       Total liabilities and 
        stockholders' equity                  $ 428,247    $ 505,251