Red Hat Reports Fiscal Third Quarter Results

Dec 18, 2001, 21:53 (9 Talkback[s])

Press Release -- RESEARCH TRIANGLE PARK, N.C.--Dec. 18, 2001-- Red Hat, Inc. (NASDAQ:RHAT) , the global leader in Linux and open source solutions, today reported an adjusted net income of $1,300,000, or $0.01 per share, excluding amortization of goodwill and stock based compensation and restructuring charges, for the third quarter of fiscal 2002, compared to an adjusted net loss of $100,000, or break even per share, for the second quarter of fiscal 2002.

The company reported revenue of $21.5 million for the third quarter ended November 30, 2001, an increase of 2% over the second quarter of fiscal 2002.

On a GAAP basis, the company reported a net loss of $15 million, or $0.09 per share, compared with a net loss of $55.3 million, or $0.33 per share in the second quarter fiscal 2002.

For the last nine months ended on November 30, 2001, the company reported revenues of $68.2 million, a decrease of 10% over the same period in year 2000. In terms of earnings, for the last nine months ended on November 30, 2001, the company reported an adjusted net income of $1,800,000, or $0.01 per share, compared to an adjusted net loss of $10,000,000, or $0.06 per share, for the last nine months of last year. On a GAAP basis, the company reported a net loss of $97.9 million - or $0.58 per share - for the last nine months ended on November 30, 2001, compared to a net loss of $62.5 million - or $0.38 per share - for the last nine months of last year.

``Significant growth of Enterprise Subscription and Open Source Services revenues are validating the acceptance of Red Hat Linux as an Enterprise Computing Platform and Red Hat's ability to monetize the adoption of Red Hat Linux by the Large Enterprise'', stated Kevin Thompson, Executive Vice President and Chief Financial Officer.

About Red Hat, Inc.
Red Hat is the global leader in Linux and open source solutions. Red Hat is headquartered in Research Triangle Park, N.C. and has offices worldwide. For investor inquiries, contact Gabriel Szulik at Red Hat, (919) 547-0012, x439. More information about Red Hat is available at www.redhat.com.

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, merger, acquisition and other
                   costs, and restructuring charges)
               (In thousands - except per share amounts)


                        Three Months Ended          Nine Months Ended
                    November 30, August 31,  November 30, November 30,
                       2001        2001        2001         2000
                          (Unaudited)              (Unaudited)

Subscription and services revenue:
 Subscription:
  Enterprise        $  9,447     $  8,422      $ 27,591     $ 26,771
  Embedded             1,443        1,573         4,648        6,938

   Total subscription
    revenue           10,890        9,995        32,239       33,709
Services:
 Network consulting    2,370        3,682        11,248       18,702
 Embedded development
  services             2,889        3,489        11,076       14,180
 Open source services  5,327        3,959        13,641        9,041

   Total services
    revenue           10,586       11,130        35,965       41,923

   Total subscription
    and services
    revenue           21,476       21,125        68,204       75,632

Cost of subscription and services revenue:
 Subscription:
  Enterprise           2,081        2,326         7,063        9,667
  Embedded               145          146           665        1,412

    Total cost of
     subscription
     revenue           2,226        2,472         7,728       11,079
Services:
 Network consulting    1,923        2,049         7,084       12,314
 Embedded development
  services             1,738        1,251         5,355        8,228
 Open source services  2,628        2,226         7,477        4,627

    Total cost of
     services revenue  6,289        5,526        19,916       25,169

    Total cost of
     subscription and
     services revenue  8,515        7,998        27,644       36,248

Gross profit on
 subscription and
 services revenue      12,961      13,127        40,560       39,384

Hardware resale, net      -           -             -            131

Operating expense:
 Sales and marketing    8,019       9,329        28,032       37,221
 Research and
  development           3,717       4,213        12,227       11,935
 General and
  administrative        3,412       3,662        10,445       16,553

   Total operating
    expense            15,148      17,204        50,704       65,709

Loss from operations   (2,187)     (4,077)      (10,144)     (26,194)

Other interest income
 (expense), net         3,514       3,984        11,979       16,168

Net Income (loss)     $ 1,327       $ (93)      $ 1,835    $ (10,026)

Net Income (loss) per common share:
 Basic                  $0.01      ($0.00)        $0.01       ($0.06)
 Diluted                $0.01      ($0.00)        $0.01       ($0.06)
Weighted average shares outstanding:
 Basic                169,242     169,968       169,405      163,515
 Diluted              169,242     169,968       169,405      163,515




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


                        Three Months Ended       Nine Months Ended
                    November 30, August 31,  November 30, November 30,
                       2001        2001         2001         2000
                          (Unaudited)               (Unaudited)
Subscription and
 services revenue:
  Subscription:
   Enterprise       $  9,447     $  8,422      $ 27,591     $ 26,771
   Embedded            1,443        1,573         4,648        6,938

  Total subscription
   revenue            10,890        9,995        32,239       33,709
Services:
 Network consulting    2,370        3,682        11,248       18,702
 Embedded development
  services             2,889        3,489        11,076       14,180
 Open source services  5,327        3,959        13,641        9,041

   Total services
    revenue           10,586       11,130        35,965       41,923

   Total subscription
    and services
    revenue           21,476       21,125        68,204       75,632

Cost of subscription and services revenue:
 Subscription:
  Enterprise           2,081        2,326         7,063        9,667
  Embedded               145          146           665        1,412

   Total cost of
    subscription
    revenue            2,226        2,472         7,728       11,079
Services:
 Network consulting    1,923        2,049         7,084       12,314
 Embedded development
  services             1,738        1,251         5,355        8,228
 Open source services  2,628        2,226         7,477        4,627

    Total cost of
     services revenue  6,289        5,526        19,916       25,169

     Total cost of
      subscription and
      services revenue 8,515        7,998        27,644       36,248

Gross profit on
 subscription and
 services revenue     12,961       13,127        40,560       39,384

Hardware resale, net     -            -             -            131

Operating expense:
 Sales and marketing   8,019        9,329        28,032       37,221
 Research and
  development          3,717        4,213        12,227       11,935
 General and
  administrative       3,412        3,662        10,445       16,553
 Amortization of
  goodwill and
  intangibles         12,468       14,911        44,707       33,617
 Stock-based
  compensation         1,506        3,171         8,353       11,938
 Merger, acquisition
  and other              -            -           7,156        6,914
 Restructuring charges 2,409       37,175        39,584          -

   Total operating
    expense           31,531       72,461       150,504      118,178

Loss from operations (18,570)     (59,334)     (109,944)     (78,663)

Other interest income
 (expense), net        3,514        3,984        11,979       16,168

Net Income (loss)  $ (15,056)   $ (55,350)    $ (97,965)   $ (62,495)

Net Income (loss) per common share:
 Basic                ($0.09)      ($0.33)       ($0.58)      ($0.38)
 Diluted              ($0.09)      ($0.33)       ($0.58)      ($0.38)
Weighted average shares outstanding:
 Basic               169,242      169,968       169,405      163,515
 Diluted             169,242      169,968       169,405      163,515



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

                               ASSETS
                                         November, 30     February 28,
                                            2001             2001

Assets:
 Cash and investments
  in debt and equity securities        $    291,634     $    302,681
 Accounts receivable, net                    15,127           21,826
 Subcontractor receivable                       567            3,441
 Costs and estimated earnings
  in excess of billings                       5,155            3,378
 Inventory                                    1,060              740
 Prepaid expenses and other assets            7,443           11,197
 Property and equipment, net                 16,296           14,591
 Goodwill and intangibles, net               70,100          147,397

    Total assets                          $ 407,382        $ 505,251

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
 Accounts payable                      $      8,038     $      9,681
 Accrued expenses                             8,419           15,916
 Deferred revenue                             9,773           12,151
 Other short-term liabilities                11,200            3,221

    Total liabilities                        37,430           40,969
Commitments and contingencies                   -                -
Stockholders' equity:
 Noncontrolling interest in subsidiary           86              -
 Preferred stock                                  -              -
 Common stock                                    17               17
 Additional paid-in capital                 627,945          643,712
 Deferred compensation                       (9,785)         (36,051)
 Accumulated deficit                       (241,554)        (143,589)
 Treasury stock, at cost                     (6,672)               -
 Accumulated other comprehensive
  income (loss)                                 (85)             193

    Total stockholders' equity              369,952          464,282

    Total liabilities and
     stockholders' equity              $    407,382     $    505,251