Red Hat Says Company Reached Break Even Per Share in Q4

Mar 22, 2001, 21:44 (12 Talkback[s])

RESEARCH TRIANGLE PARK, N.C.--March 22, 2001-- Red Hat, Inc., the leader in in developing, deploying and managing open source solutions, today reported revenue of $27 million for the fourth quarter ended February 28, 2001, an increase of 106% versus the $13.1 million reported for the fourth quarter of fiscal 2000 and an increase of 20% over the third quarter of fiscal 2001.

The company reported an adjusted net loss of $600,000, or break even per share, for the fourth quarter of fiscal 2001, compared to an adjusted net loss of $5.6 million, or $0.04 per share, for the fourth quarter of fiscal 2000. On a reported basis, the net loss was $24.2 million, or $0.14 per share, compared with a net loss of $24.6 million, or $0.17 per share in fiscal 2000.

The company also completed its fiscal year 2001, with revenues of $84 million, compared to $42 million in fiscal 2000, a 100% increase. The adjusted net loss for fiscal 2001 was $5.9 million or $0.03 per share, compared to $19 million or $0.19 per share for fiscal 2000.

``Red Hat expanded its sources of revenue by introducing strategic solutions to our global customers, which contributed to our strong operating results,'' commented Matthew Szulik, President and CEO of Red Hat. ``Our management team has continued to accomplish the operational and financial goals stated a year ago.''

Highlights for the fourth quarter include:

CUSTOMER WINS / MAJOR DEALS

• Nortel is implementing Open Source Java solutions for the Power PC architecture for deployment in Nortel products.
• Deutsche Telekom is focusing Red Hat Linux on web-based applications
• Lufthansa Airplus is using Red Hat Linux in business travel management and ePayment and customer care solutions
• Dresdner Bank is implementing Red Hat Linux on web servers for internal use, in its department servers, and as a development platform
• Symbol Technologies, which has more than 50% world market share in key and pen-based mobile computing, is working with Red Hat to deploy wireless devices based on Red Hat Embedded Linux
• Mentor Graphics is using the Red Hat GNUPro tools across multiple operation systems for the development and deployment of their software products
• Morpho Technologies is working with Red Hat to deploy GNUPro tools and Red Hat software technologies for Morpho's semiconductor processor platforms
• Hitachi continues to work with Red Hat to deploy Red Hat GNUPro and Embedded Linux for Hitachi SH processors that are used in all types of embedded applications
• GE Corporate Research is migrating their development workstations to Linux, replacing Sun Solaris platforms
• LSI Logic is porting its SCSI products to Red Hat Linux, and working with Red Hat to allow LSI a faster time to market for Linux-based products
• Ubicom Joined forces with Red Hat to support Device Networking Designers; Red Hat GNUPro Development Environment will run on Ubicom IP2000 internet processors.
• Red Hat announced that Daiei Information Systems of Japan has chosen Red Hat to provide a comprehensive system of end-to-end open source solutions for the company and its subsidiaries and customers.
• Announced that Rymic Systems has chosen Red Hat's uClinux as the operating system for a prototypical vehicle monitoring device soon to be tested by the United States Army. The embedded device will be incorporated in the Bradley fighting vehicles, heavy expanded mobility tactical trucks and humvees.
• Keio University will build a large-scale campus network server system using Red Hat Linux 7 and IBM Netfinity 4500R server, from Japan IBM Corporation. This server network system will also adopt the new IBM eServer xSeries network servers from IBM Japan.

ACQUISITIONS

• Acquired Planning Technologies Inc, and Atlanta professional consulting service company, for $47 million in stock, adding to Red Hat's global capabilities for end-to-end open source solutions.
• Acquired Akopia of Reston, Virginia, integrating Akopia's popular Interchange e-commerce platform into Red Hat's solutions portfolio, which now includes Interchange, the Stronghold Secure Web Server, and CCVS e-commerce payment system for a comprehensive e-commerce solution stack.

MANAGEMENT

• Hired James Neiser, Ph. D, as the Chief Marketing Officer. Most recently Neiser was the VP of WW Channel and Customer Set Marketing in IBM Software, and also served in a variety of executive marketing positions while at IBM. Dr. Neiser brings over 19 years of marketing experience from a variety of software companies.
• Red Hat appointed Selby Wellman to board of directors. Wellman brings to Red Hat more than 30 years of experience in management, marketing and engineering at leading technology corporations. He joined the board from Cisco Systems, where he served most recently as senior vice president and general manager of the InterWorks Business Division. Wellman also served as senior vice president of business units in San Jose, Calif, and senior executive for corporate marketing while at Cisco.

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 for devices to mainframes, a complete end to end set of Professional Services, and the Red Hat Network as the Internet-based backbone for deployment and management of the products and services. Red Hat's open source platform includes the award-winning Red Hat Linux operating system platform, the Interchange e-Commerce platform, Stronghold Secure Web Server, Credit Card Verification software, High Availability Server, GNU-based developer toolkit for embedded development, and embedded run-time Linux, eCOS, and RedBoot solutions.

Red Hat backs up their open source offerings with end-to-end services that include Red Hat Professional Consulting focused on multiplatfom infrastructure and engineering services, Red Hat Engineering services for software development and porting of the operating system and for embedded platforms and devices, Red Hat Enterprise support services for installation services and web and telephone support, and Red Hat Learning services for Linux certification (RHCE) and courses for Apache, Embedded systems, Advanced Developer, and e-Commerce. Red Hat Network provides Red Hat's unique managed services capability to deploy and manage open source products, services, support and management information on-line in real-time to more cost effectively and reliably maintain open source based solutions.

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
Consolidated Statements of Operations (Excludes amortization of goodwill and intangibles, stock based compensation, and merger and acquisition costs)

                     Three months Three months  Year         Year
                     ended        ended         ended        ended
                     Feb. 28,     Feb. 29,      Feb. 28,     Feb. 28,
                     2001 (A)     2000 (B)      2001 (A)     2001 (C)

Revenue
 Subscription       11,790,059    8,138,222    45,498,605  45,498,605
 Services           15,230,187    4,969,881    57,152,952  38,451,417
 Hardware resale                                  777,070
     Total revenue  27,020,246   13,108,103   103,428,627  83,950,022

Costs of Revenue
 Subscription        3,581,566    4,152,541    14,660,496  14,660,496
 Services            8,232,795    2,742,704    33,402,199  21,088,108
 Hardware resale                                  645,813
     Total cost of
      revenue       11,814,361    6,895,245    48,708,508  35,748,604

Gross Profit        15,205,885    6,212,858    54,720,119  48,201,418

Operating expense
 Sales and
  marketing         11,758,221    7,429,364    48,979,339  40,110,319
 Research and
  development        3,778,340    3,463,466    15,713,563  15,713,563
 General and
  administrative     4,870,463    3,114,266    21,423,768  19,165,699
     Total operating
      expenses      20,407,024   14,007,096    86,116,670  74,989,581

Income (loss) from
 operations         (5,201,139)  (7,794,238)  (31,396,551)(26,788,163)

Other income
 (expense), net      4,674,383    2,296,445    21,032,085  21,102,726

Income (loss) before
 income taxes         (526,756)  (5,497,793)  (10,364,466) (5,685,437)

Provision for
 income taxes           77,143       53,344       266,857     266,857

Net income (loss)     (603,899)  (5,551,137)  (10,631,323) (5,952,294)

Net income (loss)
 per common share
  Basic                   0.00        (0.04)        (0.06)      (0.03)
  Diluted                 0.00        (0.04)        (0.06)      (0.03)

Weighted average
 common shares
 outstanding
  Basic            168,155,576  145,694,264  164,659,004  165,043,563
  Diluted          168,155,576  145,694,264  164,659,004  165,043,563



Consolidated Statements of Operations

                     Three months  Three months   Year        Year
                        ended         ended       ended       ended
                       Feb. 28,      Feb. 29,    Feb. 28,    Feb. 28,
                       2001 (A)      2000 (B)    2001 (A)    2001 (C)
Revenue
 Subscription        11,790,059   8,138,222   45,498,605   45,498,605
 Services            15,230,187   4,969,881   57,152,952   38,451,417
 Hardware resale                                 777,070
   Total revenue     27,020,246  13,108,103  103,428,627   83,950,022

Costs of Revenue
 Subscription         3,581,566   4,152,541   14,660,496   14,660,496
 Services             8,232,795   2,742,704   33,402,199   21,088,108
 Hardware resale                                 645,813
   Total cost of
    revenue          11,814,361   6,895,245   48,708,508   35,748,604

Gross Profit         15,205,885   6,212,858   54,720,119   48,201,418

Operating expense
 Sales and marketing 11,758,221   7,429,364   48,979,339   40,110,319
 Research and
  development         3,778,340   3,463,466   15,713,563   15,713,563
 General and
  administrative      4,870,463   3,114,266   21,423,768   19,165,699
 Amortization of
  goodwill and
  intangibles        16,187,333   3,069,068   49,804,415   43,892,394
 Stock based
  compensation        5,122,659   3,385,216   17,060,010   17,133,396
 Merger, acquisition
  and other           2,306,335  12,604,058    9,219,862    9,219,862
   Total operating
    expenses         44,023,351  33,065,438  162,200,957  145,235,233

Income (loss) from
 operations         (28,817,466)(26,852,580)(107,480,838) (97,033,815)

Other income
 (expense), net       4,674,383   2,296,445   21,032,085   21,102,726

Income (loss) before
 income taxes       (24,143,083)(24,556,135) (86,448,753) (75,931,089)

Provision for income
 taxes                   77,143      53,344      266,857      266,857

Net income (loss)   (24,220,226)(24,609,479) (86,715,610) (76,197,946)


Net income (loss)
 per common share
  Basic                   (0.14)      (0.17)       (0.53)       (0.46)
  Diluted                 (0.14)      (0.17)       (0.53)       (0.46)

Weighted average common
shares outstanding
  Basic             168,155,576 145,694,264  164,659,004  165,043,563
  Diluted           168,155,576 145,694,264  164,659,004  165,043,563


(A) Represents the pooled results of operations of Red Hat and
    Planning Technologies, Inc. for the period indicated.

(B) Represents the previously reported results of operations of Red
    Hat for the period indicated.

(C) Represents the previously reported results of operations of Red
    Hat for the nine month period ended November 30, 2000 and the
    pooled results of operations of Red Hat and Planning Technologies,
    Inc. for the three month period ended February 28, 2001.



 RED HAT, INC.
Consolidated Balance Sheets

                                       February 28,     February 29,
                                           2001            2000(A)
Assets
Current assets:
 Cash and cash equivalents              85,212,830     242,426,032
 Investments in debt and
  equity securities                     62,911,634      27,460,222
 Accounts receivable, net               24,753,635       7,893,936
 Subcontractor receivable                3,441,394               0
 Inventory                                 739,960         488,977
 Prepaid expenses and other
  current assets                         2,171,721       1,874,973

  Total current assets                 179,231,174     280,144,140

Property and equipment, net             14,591,510       7,909,103
Goodwill and intangibles, net          143,719,901      58,267,419
Investments in debt and
 equity securities                     154,556,684      72,354,212
Other assets, net                        9,108,984       4,859,958

  Total assets                         501,208,253     423,534,832

Liabilities and stockholders' equity
Current liabilities
 Accounts payable                        9,681,174      10,774,546
 Royalties payable                                         115,117
 Accrued expenses                       15,915,682       7,571,058
 Deferred revenue                       12,150,549      11,030,337
 Short-term notes payable                2,750,000
 Current portion of capital
  lease obligation                         336,143         366,062

  Total current liabilities             40,833,548      29,857,120

Capital lease obligations                  135,090         230,516
Commitments and contingencies                    0               0

Stockholders' equity:
 Preferred stock
 Common stock                               16,849          15,334
 Additional paid-in capital            639,669,483     477,781,234
 Shareholder receivables                         0         (66,899)
 Deferred compensation                 (36,051,412)    (35,159,127)
 Accumulated other comprehensive
  income                                   193,462        (515,868)
 Accumulated deficit                  (143,588,767)    (48,607,478)

  Total stockholders' equity           460,239,615     393,447,196

  Total liabilities and
   stockholders' equity                501,208,253     423,534,832

(A) Represents the previously reported balance sheet of Red Hat as of
    February 29, 2000.

---

Contact:

     Company Contact:
     Red Hat, Inc.
     Melissa London
     (919) 547-0012
     melissa@redhat.com
         or
     Investor Contact:
     Red Hat, Inc.
     Gabriel Szulik
     Investor Relations Manager
     (919) 547-0012
     gszulik@redhat.com