Analyst Conference Summary

Red Hat

conference date: June 25, 2008 @ 2:00 PM Pacific Time
for quarter ending: May 31, 2008 (1st quarter fiscal 2009)

Forward-looking statements

Overview: Revenues and operating cash flow continue strong growth rates, but net income growth is slower.

Basic data (GAAP) :

Revenue was $156.6 million, up 11% sequentially from $141.5, and up 32% from $118.9 million year-earlier.

Net income was $17.3 million, down 21% sequentially from $22.0 million, but up 7% from $16.2 million year-earlier.

EPS (earnings per share were) $0.09, down 10% sequentially from $0.10, but up 12% from $0.08 year-earlier.


Fiscal Q2 revenue of $162 to $164 million. Other income $7 million due to falling. $0.18 non-GAAP EPS

Full year revenue of $665 to $680 million. Other income will likely continue lower, knocking of a penny per quarter in EPS.

Conference Highlights:

Operating cash flow was $63.4 million, up 16% sequentially from $54.5 million and up 60% from $39.7 million year-earlier.

"We continued to see top enterprise customers expand Red Hat deployments and new customers migrate to our solutions." Revenue growth was above guidance.

Enterprise infrastructure solutions is a continued focus. The quarter saw major releases of JBoss Operations Network and Enterprise Linux as well as Red Hat Network Satellite and Fedora 9. Launching infrastructure programs to scale to $1 billion annual revenues.

All 25 of top 25 customers renewed this quarter, at a total of 150% of last year's value. Customers taking advantage of virtualization and expanding use of Linux. JBoss growing about twice as fast as Linux platform business. Customers are asking for more advice on changing over to open source.

Deferred revenue ended at $492 million. Cash and equivalents ended at $1.35 billion.

Subscription revenue was $130.7 million, services revenue $25.9 million. Total cost of revenue was $26.4 million. Leaving gross profit of $130.2 million. Operating expenses were $110.3 million, consisting of $59.3 million for sales and marketing, $28.9 million for R&D, and $22.1 million for general and administration. Income from operations was $19.9 million. Other income was $10.0 million. Interest expense $1.6 million. Income tax provision was $11.0 million.

Share based compensation expense was $10.6 million. Depreciation and amortization $9.1 million.

Accounts receivable ended at $115 million. Accounts payable was $12 million.

Non-GAAP net income was $37.0 million. Non-GAAP EPS was $0.18. 83.6% non-GAAP gross margin. Net income was lower than last quarter due to lower other income.

51% of revenues were from the channel, 49% from direct sales. Goal is to increase channel percentage, but had a few major direct sales this quarter.

Revenues by geography: 69% Americas, 24% EMEA, 17% Asia-Pacific, driven by acceleration in Japan.

$190 million in NOLs (tax credits) remain.


Percentage of bookings greater than a year? 31%, down a bit from last 2 quarters.

Effect of larger deals? Some large deals are billed over time, but varies with customers.

Advanced Platform share of deployments? The very large deal this quarter upgraded from basic subscription to Advanced Platform.

Even with largest deal backed out, top 25 revenue was up 120%.

Macroeconomic effects? Government and telco are very strong right now. Some customers are nervous, but so far the pipeline remains strong.

JBoss pipeline looks strong throughout the world.

Expected $5 million from Amentra acquisition, did more than that. Won't separate it out going forward.

Your second quarter bookings have been typically seasonally flat? It is hard to predict bookings, but revenues tend to be on a smoother trend.

Of the three mega deals over $5 million, one billed only $2 million in quarter, the other 2 paid less than half of the full value of the deals. JBoss was well represented in largest deals.

Channel partners program? No particular geography stands out, but across the board have seen a lot of strength in middleware due to Oracle acquisition of BEA. Sign up activity seems to be picking up.

Virtualization metrics? Customers can move to higher versions when they want to, so we don't have specific numbers. We did announce an embedded hypervisor last week.

Pricing environment? We have maintained our prices and discounting discipline. We continue to compete very effectively with the value proposition to our customers.

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Copyright 2008 William P. Meyers