Red Hat, Inc. Reports Strong Revenue Gains in Second Fiscal Quarter; Company Sees Accelerating Adoption of Open Source Software.DURHAM Durham, town and district, England Durham, town (1991 pop. 38,105) and district, county seat of Durham, NE England, on the sides of a hill nearly encircled by the Wear River. The town's small factories produce organs and carpets. , N.C.--(BUSINESS WIRE)--Sept. 22, 1999-- Red Hat, Inc. (Nasdaq: RHAT RHAT Red Hat (stock symbol) RHAT Rainwater Harvesting Association of Tanzania RHAT Register Hba Attributes ), a leading provider and developer of open source software, services and information, today reported that its revenues totaled $4.4 million in its second fiscal quarter, which ended on August 31, 1999. This is a 95% increase over revenues of $2.3 million for the same period a year earlier. The Company had a net loss of $3.1 million, or $0.09 per share, in the second quarter of fiscal year 2000, compared with net income of $0.1 million, or $0.01 per share, in the second quarter of fiscal 1999. Had the Company's initial public offering been completed at June June: see month. 1, 1999, the Company's weighted average common shares outstanding for the three months ended August 31, 1999 would have been 67,835,538, which would have resulted in a net loss per common share of $0.05 for such period. In the six months ended August 31, 1999, Red Hat's revenues were $7.2 million, 89% higher than revenues of $3.9 million in the first half of the preceding fiscal year. The net loss was $5.2 million, or $0.18 per common share, in the current fiscal year's first six months, as compared to $3.1 million or $0.09 per common share for the same period in the prior fiscal year. Had the Company's initial public offering been completed at March 1, 1999, the Company's weighted average common shares outstanding for the six months ended August 31, 1999 would have been 66,532,172, which would have resulted in a net loss per common share of $0.08 for such period. "Our performance during the second quarter illustrates our ability to successfully execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution our business plan and the increasingly rapid adoption of open source software around the world," said Bob Young, chairman and chief executive officer. "We are continuing to move our business model toward a blended blend v. blend·ed or blent , blend·ing, blends v.tr. 1. To combine or mix so that the constituent parts are indistinguishable from one another: revenue mix from subscription based products, our services business and the Red Hat portal. At the same time, we're we're Contraction of we are. we're we are demonstrating that Red Hat has the ability to drive the growth of the open source market. As more and more enterprise customers become part of the open source community, demand for the support and services we provide naturally increases globally." "We're responding to the growing demand for open source software and services by extending the Red Hat organization to more and more parts of the world. During the second quarter we opened an office in Japan and appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. a general manager for our European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. operation. We are moving quickly to staff these offices with sales, marketing, services and engineering personnel and plan to begin providing 24/7 support in these important growth markets next month. These international offices follow the opening of our West Coast office last summer, increasing our presence around the globe." The company's shift to a subscription model in providing products to its customers has been well received, Mr. Young said, with product revenue providing 74% of total revenue in the second quarter. "In addition, we doubled the number of Red Hat's enterprise customers to 34 this quarter compared to 17 for the first quarter of this fiscal year, reflecting the accelerating rate at which the open source approach is being adopted by corporations both in the U.S. and around the world." "We are driving the growth of open source software, a method of developing software that gives control of the technology to the customer," Mr. Young said. "Among the major reasons for this growth are the dependability dependability - software reliability of Red Hat's products, the growing recognition and power of the Red Hat brand, and our market leadership position. We believe that Red Hat is becoming the reference point for open source usage. This is apparent in the stature stature /sta·ture/ (stach´ur) the height or tallness of a person standing.stat´ural stat·ure n. The height of a person. stature the height of an animal in the standing position. of the companies with which we have formed alliances -- companies such as Compaq (Compaq Computer Corporation, Houston, TX, www.compaq.com) Compaq was the leading PC manufacturer when it was acquired by HP in 2002. Founded in 1982 by Rod Canion, Jim Harris and Bill Murto, one year later the company shipped 53,000 PC-compatible COMPAQ Portables, resulting in $111 , Dell, IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) and Oracle -- and the growing number of enterprise applications." Highlights of the second quarter include: - A revenue-sharing service agreement with IBM Global Services IBM Global Services is the world's largest business and technology services provider. It is the fastest growing part of IBM, with over 190,000 professionals serving customers in more than 160 countries. in which we work with IBM to provide technical support to customers of Red Hat Linux Red Hat Linux, assembled by Red Hat, was a popular, "middle-aged" Linux distribution (not as old as Slackware but older than Ubuntu) upon its discontinuation in 2004.[1] Red Hat Linux 1.0 was released on November 3, 1994. . - A similar agreement in which we work with Compaq to provide technical support to customers of Red Hat Linux. - A third such agreement in which Siemens (Siemens AG, Munich, Germany, www.siemens.com) A leading European electrical and electronics firm founded in 1847. Siemens has more than 430,000 employees in nearly 200 countries, and more than 50,000 professionals are engaged in research and development. offers products, technical support and training services related to Red Hat Linux in Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). . - A contract with Global Knowledge under which it has become a training partner of Red Hat, providing its customers with both training and certification in Red Hat Linux. - A contract that makes Collective Technologies a partner of Red Hat in its consulting activities. - The acquisition of certain assets, including a number of engineering employees, of delix GmbH GmbH Gesellschaft mit Beschränkter Haftung (German: limited liability company; business entity) of Germany, developers of DLD DLD Dihydrolipoamide Dehydrogenase (deficiency) DLD Domestic Long Distance DLD Digital Lifestyle Device DLD Deutsche Linux Distribution DLD Developmental Language Disorder DLD Don't Look Down (band) Linux Linux Nonproprietary operating system (OS) for digital computers. In 1991 Linus Torvalds of Finland began asking for volunteer programmers over the Internet to collaborate on the development of a UNIX-like OS for personal computers; the “1. with significant open source expertise. - The acquisition of certain assets of Atomic Indivisible. An atomic operation, or atomicity, implies an operation that must be performed entirely or not at all. For example, if machine failure prevents a transaction to be processed to completion, the system will be rolled back to the start of the transaction. Vision, a Web site development company, the addition of a number of former Atomic Vision employees and subsequent improvements to the redhat.com Web site. - Increased acceptance of the redhat.com Web site as a leading destination site for communications within the growing open source community. The site had 33.3 million page views in the second quarter and has begun carrying paid advertising. "This is a time of tremendous opportunity for Red Hat -- a time for spreading the use of our products and services as rapidly as possible," Mr. Young said. "We are pursuing our opportunities both through partners and by building up our own ability to reach and serve customers directly. Using both approaches simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics enables us to get the maximum use of our resources, and also gives full scope to the experience skills of our seasoned management team." About Red Hat Red Hat is a leading developer and provider of open source software, services and information. Red Hat's Web site, redhat.com, is a leading online source of information and news about open source software and one of the largest online communities of open source software users and developers. For further information about Red Hat, please visit the Company's Web site, www.redhat.com. For investor inquiries, please call the Company's toll-free line, 888-REDHAT3. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. in this press release are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. 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, statements regarding current or future financial performance, management's plans and objectives for future operations, product plans and performance, management's assessment of market factors, and statements regarding the strategy and plans of the Company and its strategic partners, constitute forward-looking statements. These forward-looking statements are not guarantees of the Company's future performance and are subject to a number of risks and uncertainties that could cause the Company's actual results in the future materially to differ from the forward-looking statements. These risks and uncertainties include, without limitation, risks associated with the Company's ability to successfully shift its business model to a model built upon subscription-based product offerings, the Company's ability to attract new enterprise customers and to meet their needs by expanding and enhancing its service offerings, the need to continually con·tin·u·al adj. 1. Recurring regularly or frequently: the continual need to pay the mortgage. 2. enhance the Company's Web site and the ability to generate significant revenues from it, challenges associated with the Company's domestic and international expansion, the Company's ability to enter into new and retain existing strategic alliances with technology leaders, the continuing need for an increasing number of Linux-based enterprise applications, the Company's dependence upon an open source business model, reliance upon independent third-party Linux developers, management of growth, expansion of the Company's business focus, the possibility of undetected software errors, the enforceability of the GNU General Public License A software license from the Free Software Foundation (FSF) that ensures every user receives the essential freedoms that define "free" software, which is free of restrictions (see free software). and other licenses under which the Company's products are developed and licensed, the risks of economic downturns generally, and in the Company's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , year 2000 compliance efforts of the Company and of third parties on which the Company depends, and other risks detailed in the Company'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 See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. .
RED HAT, INC.
Condensed Consolidated Statements of Operations
(U.S. Dollars in thousands, except per share amounts)
Three months ended Six months ended
August 31, August 31,
-------------------------------------------------
1999 1998 1999 1998
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
Revenue
Software and
related products $3,254,512 2,167,312 $5,190,330 $3,540,962
Web advertising 105,666 - 185,716 -
Services and other 1,009,884 70,588 1,791,235 247,903
---------------------------------------------
Total revenue 4,370,062 2,237,900 7,167,281 3,788,865
---------------------------------------------
Cost of revenue
Software and related
products 1,519,535 785,243 2,700,439 1,467,658
Web advertising 202,961 - 325,961 -
Services and other 913,648 - 1,356,808 -
---------------------------------------------
Total cost of revenue 2,636,144 785,243 4,383,208 1,467,658
---------------------------------------------
Gross profit 1,733,918 1,452,657 2,784,073 2,321,207
---------------------------------------------
Operating expense
Sales and marketing 2,422,912 482,465 4,051,479 864,123
Research and development 1,664,751 457,713 2,490,875 798,678
General and
administrative 1,090,861 330,518 1,915,019 544,169
---------------------------------------------
Total operating
expense 5,178,524 1,270,696 8,457,373 2,206,970
---------------------------------------------
Income (loss) from
operations (3,444,606) 181,961 (5,673,300) 114,237
Other income (expense),
net 336,683 11,843 475,987 27,066
---------------------------------------------
Income (loss) before
income taxes (3,107,923) 193,804 (5,197,313) 141,303
Provision for income taxes - 61,658 - 61,658
Net income (loss) (3,107,923) 132,146 (5,197,313) 79,645
Accretion on mandatorily
redeemable preferred
stock (39,393) - (82,473) -
---------------------------------------------
Net income (loss)
available to
common stockholders $(3,147,316) $132,146 $(5,279,786) $79,645
=============================================
Net income (loss)
per common share
Basic (0.0935) 0.0056 (0.1820) 0.0034
Diluted (0.0935) 0.0032 (0.1820) 0.0020
=============================================
Weighted average common
shares outstanding
Basic 33,649,671 23,500,000 29,016,512 23,500,000
Diluted 33,649,671 40,842,800 29,016,512 40,840,274
RED HAT, INC.
Condensed Consolidated Balance Sheets
(U.S. Dollars in thousands)
August 31, February 28,
1999 1999
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,351,770 $10,055,227
Short-term investments 417,124 2,037,992
Accounts receivable, net 1,715,279 1,127,193
Inventory 887,136 345,630
Prepaid expenses 601,360 173,730
Income tax receivable 114,145 114,145
------------- ----------
Total current assets 11,086,814 13,853,917
Property and equipment, net 2,369,799 1,270,576
Other assets, net 787,366 151,310
Long-term investments 95,653,362 -
------------- ----------
Total assets $ 109,897,341 $15,275,803
========================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 3,408,744 $ 2,087,305
Royalties payable 216,963 144,074
Accrued expenses 597,421 379,757
Deferred revenue 3,245,275 33,352
Current portion of capital lease
obligations 90,466 108,897
------------- ----------
Total current liabilities 7,558,869 2,753,385
Capital lease obligations 381,403 419,778
Commitments and contingencies - -
Mandatorily redeemable preferred stock
Series A - 1,992,184
Series B - 6,919,644
Series C - 3,195,591
Stockholders' equity (deficit)
Common stock 6,877 2,385
Additional paid-in capital 115,385,071 427,464
Deferred compensation (7,647,751) -
Accumulated other comprehensive income (72,714) -
Accumulated deficit
(5,714,414) (434,628)
------------- ----------
Total stockholders' equity (deficit) 101,957,069 (4,779)
------------- ----------
Total liabilities and stockholders' equity $ 109,897,341 $15,275,803
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