Last10K.com

Red Hat Inc (RHT) SEC Filing 8-K Material Event for the period ending Monday, December 17, 2018

Red Hat Inc

CIK: 1087423 Ticker: RHT

Exhibit 99.1

Red Hat Reports Third Quarter Results for Fiscal Year 2019

  • Third quarter total revenue of $847 million, up 13% year-over-year, or 15% in constant currency
  • Third quarter Infrastructure-related subscription revenue of $534 million, up 8% year-over-year, or 9% in constant currency
  • Third quarter Application Development-related and other emerging technology subscription revenue of $207 million, up 28% year-over-year, or 30% in constant currency
  • Quarter-end deferred revenue balance of $2.5 billion, up 20% year-over-year, or 23% in constant currency

RALEIGH, N.C.--(BUSINESS WIRE)--December 17, 2018--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the third quarter of fiscal year 2019 ended November 30, 2018.

“Adoption of Red Hat’s technologies that enable customers to build and deploy applications more securely and consistently across hybrid and multi-cloud environments continued to drive our growth in Q3,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “For instance, our Certified Cloud and Service Providers (CCSP) program reached the $300 million annualized run-rate milestone in Q3 with 25% year-over-year growth of Red Hat Enterprise Linux on-demand in the public clouds. In addition, we continue to experience strong customer growth in Red Hat OpenShift, our enterprise Kubernetes platform, and Red Hat Ansible Automation, both of which added more than 100 customers in Q3.”

“In Q3, we closed 100 deals over $1 million and delivered double digit total revenue growth of 13% year-over-year, or 15% in constant currency and deferred revenue growth of 20% year-over-year, or 23% in constant currency despite continued foreign exchange volatility. Moreover, our total backlog grew 22% year-over-year to approximately $3.5 billion,” said Eric Shander, Executive Vice President and Chief Financial Officer for Red Hat. “Strong renewals of our largest deals also helped drive these results with all of our top 25 deals renewing at an upsell rate above 120%.”

Revenue: Total revenue for the quarter was $847 million, up 13% year-over-year, or 15% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $741 million, up 13% year-over-year, or 15% measured in constant currency. Subscription revenue in the quarter was 87% of total revenue.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $534 million, an increase of 8% year-over-year, or 9% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $207 million, an increase of 28% year-over-year, or 30% measured in constant currency.


Operating Income: GAAP operating income for the quarter was $109 million, down 8% year-over-year. After adjusting for non-cash share-based compensation expense, amortization of intangible assets, and transaction costs related to business combinations, non-GAAP adjusted operating income for the third quarter was $203 million, up 13% year-over-year. For the third quarter, GAAP operating margin was 12.9% and non-GAAP adjusted operating margin was 24.0%. Non-GAAP references in this release are detailed in the tables below.

Net Income: GAAP net income for the quarter was $94 million, or $0.51 diluted earnings per share (“EPS”), compared with GAAP net income of $102 million, or $0.55 diluted EPS, in the year-ago quarter.

After adjusting for non-cash share-based compensation expense, amortization of intangible assets, transaction costs related to business combinations and non-cash interest expense related to the debt discount, non-GAAP adjusted net income for the quarter was $175 million, or $0.96 diluted EPS, as compared to $133 million, or $0.73 diluted EPS, in the year-ago quarter. Non-GAAP adjusted diluted weighted average shares outstanding excludes dilution that is expected to be offset by our convertible note hedge transactions.

Cash: GAAP and non-GAAP operating cash flow was $137 million for the third quarter, down 15% on a year-over-year basis compared to GAAP operating cash flow. Non-GAAP operating cash flow adjusts for the impact of our recent adoption of ASU 2016-15: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which requires the portion of repayments of convertible notes during the third quarter that is attributable to debt discount to be classified as operating cash flow. GAAP and non-GAAP operating cash flow include approximately $23 million of business combinations expenses paid in the quarter. Total cash, cash equivalents and investments as of November 30, 2018 was $2.2 billion after repurchasing approximately $13 million, or approximately 0.1 million shares, of common stock in the third quarter. The remaining balance in the current repurchase authorization as of November 30, 2018 was approximately $737 million.

Deferred revenue: At the end of the third quarter, the Company’s total deferred revenue balance was $2.5 billion, an increase of 20% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $53 million year-over-year. On a constant currency basis, total deferred revenue would have increased 23% year-over-year.

Due to the pending transaction with International Business Machines Corporation, Red Hat will not be updating its outlook for fiscal 2019 and will not be hosting a conference call for its third quarter 2019 business results.

Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below.


About Red Hat, Inc.

Red Hat is the world’s leading provider of enterprise open source software solutions, using a community-powered approach to deliver reliable and high-performing Linux, hybrid cloud, container, and Kubernetes technologies. Red Hat helps customers integrate new and existing IT applications, develop cloud-native applications, standardize on our industry-leading operating system, and automate, secure, and manage complex environments. Award-winning support, training, and consulting services make Red Hat a trusted adviser to the Fortune 500. As a strategic partner to cloud providers, system integrators, application vendors, customers, and open source communities, Red Hat can help organizations prepare for the digital future. Learn more at www.redhat.com.

Forward-Looking Statements

Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: risks related to the ability of the Company to compete effectively; the ability to deliver and stimulate demand for new products and technological innovations on a timely basis; delays or reductions in information technology spending; the integration of acquisitions and the ability to market successfully acquired technologies and products; risks related to errors or defects in our offerings and third-party products upon which our offerings depend; risks related to the security of our offerings and other data security vulnerabilities; fluctuations in exchange rates; changes in and a dependence on key personnel; the effects of industry consolidation; uncertainty and adverse results in litigation and related settlements; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; the ability to meet financial and operational challenges encountered in our international operations; and ineffective management of, and control over, the Company's growth and international operations, as well as other factors contained in our most recent Quarterly Report on Form 10-Q (copies of which may be accessed through the Securities and Exchange Commission's website at http://www.sec.gov), including those found therein under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic and political conditions, governmental and public policy changes and the impact of natural disasters such as earthquakes and floods. The forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this press release.

Red Hat and the Shadowman logo are trademarks or registered trademarks of Red Hat, Inc. or its subsidiaries in the U.S. and other countries. Linux® is the registered trademark of Linus Torvalds in the U.S. and other countries.


 

RED HAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
(In thousands - except per share amounts)
   
Three Months Ended Nine Months Ended
November 30,   November 30, November 30,   November 30,
2018 2017 (1) 2018 2017 (1)
Revenue:
Subscriptions $ 740,661 $ 656,832 $ 2,174,881 $ 1,890,902
Training and services 106,134   91,146   308,191   257,227  
Total revenue 846,795   747,978   2,483,072   2,148,129  
 
Cost of revenue:
Subscriptions 53,441 47,277 157,545 137,234
Training and services 70,676   64,482   208,201   181,938  
Total cost of revenue 124,117   111,759   365,746   319,172  
 
Gross profit 722,678 636,219 2,117,326 1,828,957
 
Operating expense:
Sales and marketing 353,592 308,083 1,036,787 880,723
Research and development 164,267 145,580 497,081 424,552
General and administrative 95,861   63,838   227,788   180,430  
Total operating expense 613,720   517,501   1,761,656   1,485,705  
 
Income from operations 108,958 118,718 355,670 343,252
Interest income 7,334 4,864 23,023 13,469
Interest expense 4,299 6,180 15,426 18,346
Other expense, net (464 ) (1,187 ) (5,115 ) (3,033 )
 
Income before provision for income taxes 111,529 116,215 358,152 335,342
Provision for income taxes 17,079   14,606   63,658   61,331  
Net income $ 94,450   $ 101,609   $ 294,494   $ 274,011  
 
Net income per share:
Basic $ 0.54 $ 0.57 $ 1.67 $ 1.55
Diluted $ 0.51 $ 0.55 $ 1.57 $ 1.49
Weighted average shares outstanding:
Basic 176,231 177,063 176,762 177,188
Diluted 186,062 186,160 187,501 183,397
 
(1) As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 

RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

   

November 30,
2018

February 28,
2018 (1)

ASSETS
Current assets:
Cash, cash equivalents and restricted cash $ 1,539,272 $ 1,724,132
Investments in debt and equity securities, short-term 387,885 318,358
Accounts receivable, net 732,833 806,744
Prepaid expenses 241,145 267,197
Other current assets 69,356   25,666  
Total current assets 2,970,491 3,142,097
 
Property and equipment, net 195,249 206,105
Goodwill 1,285,503 1,288,830
Identifiable intangibles, net 203,613 224,953
Investments in debt securities, long-term 295,870 430,442
Deferred tax assets, net 80,958 92,606
Other assets, net 71,330   89,460  
Total assets $ 5,103,014   $ 5,474,493  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 432,662 $ 427,139
Deferred revenue, short-term 1,738,547 1,853,719
Other current obligations 404 843
Convertible notes 191,972   23,806  
Total current liabilities 2,363,585 2,305,507
 
Deferred revenue, long-term 790,577 741,453
Convertible notes 324,153 744,194
Other long-term obligations 201,068 205,215
Stockholders’ equity:
Common stock 24 24
Additional paid-in capital 2,614,768 2,416,080
Retained earnings 1,914,574 1,619,688
Treasury stock, at cost (3,058,598 ) (2,525,072 )
Accumulated other comprehensive loss (47,137 ) (32,596 )
Total stockholders’ equity 1,423,631   1,478,124  
Total liabilities and stockholders’ equity $ 5,103,014   $ 5,474,493  
 
(1) Derived from audited financial statements except for line items adjusted by the retrospective application of ASC 606.
 

 
RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

   
Three Months Ended Nine Months Ended

November 30,
2018

 

November 30,
2017 (1)

November 30,
2018

 

November 30,
2017 (1)

Cash flows from operating activities:
Net income $ 94,450 $ 101,609 $ 294,494 $ 274,011
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,775 25,588 80,495 71,541
Amortization of debt discount and transaction costs 4,062 5,630 14,470 16,740
Repayments of convertible notes attributable to debt discount (552 ) (33,115 )
Deferred income taxes 1,983 273 (1,705 ) 7,831
Share-based compensation expense 56,278 52,318 154,969 142,983
Net amortization of bond premium on debt securities available for sale 256 2,113 1,542 6,988
Other 274 (214 ) 3,924 1,318
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (219,184 ) (113,898 ) 58,206 111,899
Other receivables (23,310 ) 135 (43,555 ) (20,211 )
Prepaid expenses 2,903 (7,062 ) 34,565 (6,831 )
Accounts payable and accrued expenses 40,325 35,562 38,620 (17,754 )
Deferred revenue 153,111 57,275 14,733 (29,017 )
Other (643 ) 978   (1,964 ) 1,577  
Net cash provided by operating activities 136,728   160,307   615,679   561,075  
 
Cash flows from investing activities:
Purchase of investment in debt securities available for sale (99,890 ) (26,580 ) (217,951 ) (285,773 )
Proceeds from maturities of investment in debt securities available for sale 66,406 130,941 259,460 348,285
Proceeds from sales of investment in debt securities available for sale 5,293 8,491 19,617
Proceeds from sales of strategic equity investments 1,300
Acquisition of businesses, net of cash acquired (11,550 ) (11,550 ) (83,965 )
Purchase of developed software and other intangible assets (1,003 ) (3,426 ) (7,127 ) (12,871 )
Purchase of property and equipment (18,229 ) (16,587 ) (44,845 ) (68,268 )
Other   84   (986 ) (105 )
Net cash (used in) provided by investing activities (64,266 ) 89,725   (13,208 ) (83,080 )
 
Cash flows from financing activities:
Proceeds from exercise of common stock options 767 711 1,831 4,541
Proceeds from employee stock purchase program 14,409 10,575 43,356 33,288
Payments related to net settlement of share-based compensation awards (32,873 ) (37,807 ) (127,605 ) (86,230 )
Purchase of treasury stock (12,791 ) (100,000 ) (412,845 ) (237,002 )
Payments on other borrowings (201 ) (346 ) (750 ) (1,207 )
Repayments of convertible notes attributable to principal (4,036 ) (6 ) (241,979 ) (6 )
Net cash used in financing activities (34,725 ) (126,873 ) (737,992 ) (286,616 )
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash (1,980 ) (2,295 ) (49,339 ) 48,985  
Net increase (decrease) in cash, cash equivalents and restricted cash 35,757 120,864 (184,860 ) 240,364
Cash, cash equivalents and restricted cash at beginning of the period 1,503,515   1,210,308   1,724,132   1,090,808  
Cash, cash equivalents and restricted cash at end of the period $ 1,539,272   $ 1,331,172   $ 1,539,272   $ 1,331,172  
 
(1) As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands - except per share amounts)

 
Three Months Ended Nine Months Ended
November 30,   November 30, November 30,   November 30,
2018 2017 (1) 2018 2017 (1)
 
Reconciliation items included in Consolidated Statements of Operations:
 
Non-cash share-based compensation expense:
Cost of revenue $ 4,803 $ 4,199 $ 14,678 $ 12,408
Sales and marketing 25,218 23,278 67,562 64,708
Research and development 17,003 14,937 48,091 42,603
General and administrative 9,254   9,904   24,638   23,264  
Total share-based compensation expense $ 56,278   $ 52,318   $ 154,969   $ 142,983  
 
Amortization of intangible assets expense:
Cost of revenue $ 5,864 $ 4,329 $ 17,880 $ 12,491
Sales and marketing 1,396 1,592 4,158 4,634
Research and development 34 34 103 103
General and administrative 2,386   2,084   7,139   6,137  
Total amortization of intangible assets expense $ 9,680   $ 8,039   $ 29,280   $ 23,365  
 
Total non-cash interest expense related to the debt discount $ 3,347   $ 4,936   $ 12,223   $ 14,693  
 
Transaction costs related to business combinations $ 27,968   $ (52 ) $ 28,086   $ 1,310  
 
Reconciliation of GAAP results to non-GAAP adjusted results:
 
GAAP net income $ 94,450 $ 101,609 $ 294,494 $ 274,011
GAAP provision for income taxes 17,079   14,606   63,658   61,331  
GAAP income before provision for income taxes $ 111,529 $ 116,215 $ 358,152 $ 335,342
 
Add: Non-cash share-based compensation expense 56,278 52,318 154,969 142,983
Add: Amortization of intangible assets expense 9,680 8,039 29,280 23,365
Add: Non-cash interest expense related to the debt discount 3,347 4,936 12,223 14,693
Add: Transaction costs related to business combinations 27,968   (52 ) 28,086   1,310  
Non-GAAP adjusted income before provision for income taxes $ 208,802 $ 181,456 $ 582,710 $ 517,693
Non-GAAP provision for income taxes (2) 33,487   48,116   117,704   141,666  
Non-GAAP adjusted net income (basic and diluted) $ 175,315   $ 133,340   $ 465,006   $ 376,027  
 
Non-GAAP adjusted diluted weighted average shares outstanding:
GAAP diluted weighted average shares outstanding 186,062 186,160 187,501 183,397
Dilution offset from convertible note hedge transactions (3,648 ) (4,109 ) (3,730 ) (2,928 )
Non-GAAP diluted weighted average shares outstanding 182,414   182,051   183,771   180,469  
 
Non-GAAP adjusted net income per share:
Basic $ 0.99 $ 0.75 $ 2.63 $ 2.12
Diluted $ 0.96 $ 0.73 $ 2.53 $ 2.08
 
(1) As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

       
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2018 2017 (1) 2018 2017 (1)
(2) Non-GAAP provision for income taxes:
Non-GAAP adjusted income before provision for income taxes $ 208,802 $ 181,456 $ 582,710 $ 517,693
GAAP estimated annual effective tax rate 21.1 % 25.9 % 22.7 % 26.8 %
Provision for income taxes on non-GAAP adjusted income before adjustments $ 44,781 $ 46,949 $ 132,275 $ 138,742
Certain non-deductible share-based compensation (3,535 ) (8,508 )
Non-deductible merger related costs (8,566 ) (8,566 )
Discrete tax expense, excluding discrete benefits related to share-based compensation 807   1,167   2,503   2,924  
Provision for income taxes on non-GAAP adjusted income, excluding impact from certain non-deductible share-based compensation, non-deductible merger related costs and discrete tax benefits related to share-based compensation $ 33,487   $ 48,116   $ 117,704   $ 141,666  
 
GAAP gross profit $ 722,678 $ 636,219 $ 2,117,326 $ 1,828,957
Add: Non-cash share-based compensation expense 4,803 4,199 14,678 12,408
Add: Amortization of intangible assets expense 5,864   4,329   17,880   12,491  
Non-GAAP gross profit $ 733,345   $ 644,747   $ 2,149,884   $ 1,853,856  
 
Non-GAAP gross margin 86.6 % 86.2 % 86.6 % 86.3 %
 
GAAP operating expenses $ 613,720 $ 517,501 $ 1,761,656 $ 1,485,705
Deduct: Non-cash share-based compensation expense (51,475 ) (48,119 ) (140,291 ) (130,575 )
Deduct: Amortization of intangible assets expense (3,816 ) (3,710 ) (11,400 ) (10,874 )
Deduct: Transaction costs related to business combinations (27,968 ) 52   (28,086 ) (1,310 )
Non-GAAP adjusted operating expenses $ 530,461   $ 465,724   $ 1,581,879   $ 1,342,946  
 
GAAP operating income $ 108,958 $ 118,718 $ 355,670 $ 343,252
Add: Non-cash share-based compensation expense 56,278 52,318 154,969 142,983
Add: Amortization of intangible assets expense 9,680 8,039 29,280 23,365
Add: Transaction costs related to business combinations 27,968   (52 ) 28,086   1,310  
Non-GAAP adjusted operating income $ 202,884   $ 179,023   $ 568,005   $ 510,910  
 
Non-GAAP adjusted operating margin 24.0 % 23.9 % 22.9 % 23.8 %
 
GAAP net cash provided by operating activities $ 136,728 $ 160,307 $ 615,679 $ 561,075
Repayments of convertible notes attributable to debt discount 552         33,115      
Non-GAAP net cash provided by operating activities $ 137,280   $ 160,307   $ 648,794   $ 561,075  
 
(1) As adjusted to reflect the impact of the retrospective application of ASC 606.
 

 
RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

 
Three Months Ended
November 30,   November 30,   Year-Over-Year
2018 2017 Growth Rate
Subscription and services revenue:
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 534,051 $ 494,974 7.9%
Adjustment for currency impact 7,479    
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 541,530 $ 494,974 9.4%
 
Application Development-related and other emerging technology offerings $ 206,610 $ 161,858 27.6%
Adjustment for currency impact 4,340    
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 210,950 $ 161,858 30.3%
 
GAAP subscription revenue $ 740,661 $ 656,832 12.8%
Adjustment for currency impact 11,819    
Non-GAAP subscription revenue on a constant currency basis $ 752,480 $ 656,832 14.6%
 
GAAP training and services revenue $ 106,134 $ 91,146 16.4%
Adjustment for currency impact 3,668    
Non-GAAP training and services revenue on a constant currency basis $ 109,802 $ 91,146 20.5%
 
GAAP total revenue $ 846,795 $ 747,978 13.2%
Adjustment for currency impact 15,487    
Non-GAAP total revenue on a constant currency basis $ 862,282   $ 747,978   15.3%
 
Nine Months Ended
November 30, November 30, Year-Over-Year
2018 2017 Growth Rate
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 1,583,154 $ 1,440,383 9.9%
Adjustment for currency impact (5,212 )  
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 1,577,942 $ 1,440,383 9.6%
 
Application Development-related and other emerging technology offerings $ 591,727 $ 450,519 31.3%
Adjustment for currency impact (890 )  
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 590,837 $ 450,519 31.1%
 
GAAP subscription revenue $ 2,174,881 $ 1,890,902 15.0%

 


 

RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)
(In thousands)
     
Adjustment for currency impact (6,102 )  
Non-GAAP subscription revenue on a constant currency basis $ 2,168,779 $ 1,890,902 14.7%
 
GAAP training and services revenue $ 308,191 $ 257,227 19.8%
Adjustment for currency impact 2,696    
Non-GAAP training and services revenue on a constant currency basis $ 310,887 $ 257,227 20.9%
 
GAAP total revenue $ 2,483,072 $ 2,148,129 15.6%
Adjustment for currency impact (3,406 )  
Non-GAAP total revenue on a constant currency basis $ 2,479,666   $ 2,148,129   15.4%
 

 
RED HAT, INC.
SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands)

   
Change in deferred revenue balances:
  Deferred Revenue
Current Long-Term Total
Balance at November 30, 2017 $ 1,482,428 $ 623,150 $ 2,105,578
Constant currency change in deferred revenue 288,895 187,871 476,766
Impact from foreign currency translation (32,776 ) (20,444 ) (53,220 )
Balance at November 30, 2018 $ 1,738,547   $ 790,577   $ 2,529,124  
 
Year-over-year growth rate 17.3 % 26.9 % 20.1 %
Year-over-year growth rate on a constant currency basis 19.5 % 30.1 % 22.6 %
 
   
Revenue growth by geographical segment:
Americas   EMEA APAC Consolidated
Total revenue for the three months ended November 30, 2018 $ 527,367 $ 198,730 $ 120,698 $ 846,795
Adjustment for currency impact 6,194   5,354   3,939   15,487  
Total revenue on a constant currency basis for the three months ended November 30, 2018 $ 533,561   $ 204,084   $ 124,637   $ 862,282  
 
Total revenue for the three months ended November 30, 2017 $ 471,773   $ 173,718   $ 102,487   $ 747,978  
 
Year-over-year growth rate 11.8 % 14.4 % 17.8 % 13.2 %
Year-over-year growth rate on a constant currency basis 13.1 % 17.5 % 21.6 % 15.3 %
 
Total revenue for the nine months ended November 30, 2018 $ 1,541,996 $ 583,181 $ 357,895 $ 2,483,072
Adjustment for currency impact 12,733   (17,992 ) 1,853   (3,406 )
Total revenue on a constant currency basis for the nine months ended November 30, 2018 $ 1,554,729   $ 565,189   $ 359,748   $ 2,479,666  
 
Total revenue for the nine months ended November 30, 2017 $ 1,373,512   $ 477,110   $ 297,507   $ 2,148,129  
 
Year-over-year growth rate 12.3 % 22.2 % 20.3 % 15.6 %
Year-over-year growth rate on a constant currency basis 13.2 % 18.5 % 20.9 % 15.4 %
 

 

RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)
(In thousands - except per share amounts)
 
The primary impact of adopting ASC 606 related to the deferral of incremental commission and other costs of obtaining contracts with customers. Certain unaudited financial statement information as adjusted to reflect the Company’s adoption of ASC 606 is set forth below. The adjustments resulting from ASC 606 are reflected in presentations of both GAAP and non-GAAP financial information.
 

Consolidated balance sheets:

February 28, 2018
As Reported (1)   Adjustments   As Adjusted
Prepaid expenses $ 260,092 $ 7,105 $ 267,197
Deferred tax assets, net $ 93,300 $ (694 ) $ 92,606
Other assets, net $ 87,924 $ 1,536 $ 89,460
Accounts payable and accrued expenses $ 427,086 $ 53 $ 427,139
Retained earnings $ 1,611,794 $ 7,894 $ 1,619,688
 
(1) Derived from audited financial statements.
 
Consolidated statements of operations:
Three Months Ended May 31, 2017
As Reported Adjustments As Adjusted
Operating expense:
Sales and marketing $ 296,459 $ (2,136 ) $ 294,323
Net income $ 73,190 $ 2,124 $ 75,314
Net income per share:
Basic $ 0.41 $ 0.01 $ 0.42
Diluted $ 0.40 $ 0.01 $ 0.41
 
Three Months Ended August 31, 2017
As Reported Adjustments As Adjusted
Operating expense:
Sales and marketing $ 278,548 $ (231 ) $ 278,317
Net income $ 96,859 $ 229 $ 97,088
Net income per share:
Basic $ 0.55 $ $ 0.55
Diluted $ 0.53 $ $ 0.53
 
Three Months Ended November 30, 2017
As Reported Adjustments As Adjusted
Operating expense:
Sales and marketing $ 308,388 $ (305 ) $ 308,083
Net income $ 101,306 $ 303 $ 101,609
Net income per share:
Basic $ 0.57 $ $ 0.57
Diluted $ 0.54 $ 0.01 $ 0.55
 

 

RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands - except per share amounts)
     
Three Months Ended February 28, 2018
As Reported Adjustments As Adjusted
Operating expense:
Sales and marketing $ 315,181 $ (618 ) $ 314,563
Net loss $ (12,552 ) $ 392 $ (12,160 )
Net loss per share:
Basic $ (0.07 ) $ $ (0.07 )
Diluted $ (0.07 ) $ $ (0.07 )
 
Twelve Months Ended February 28, 2018
As Reported (1) Adjustments As Adjusted
Operating expense:
Sales and marketing $ 1,198,576 $ (3,290 ) $ 1,195,286
Net income $ 258,803 $ 3,048 $ 261,851
Net income per share:
Basic $ 1.46 $ 0.02 $ 1.48
Diluted $ 1.40 $ 0.02 $ 1.42
 
(1) Derived from audited financial statements.
 

CONTACT:
Media Contact:
Stephanie Wonderlick
Red Hat, Inc.
(571) 421-8169
swonderl@redhat.com

Investor Relations:
Tom McCallum
Red Hat, Inc.
(919) 754-4630
tmccallum@redhat.com


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): December 17, 2018



Red Hat, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

001-33162

06-1364380

(Commission File Number)

(I.R.S. Employer Identification No.)

100 East Davie Street, Raleigh, North Carolina

27601

(Address of Principal Executive Offices) (Zip Code)

(919) 754-3700
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  



Item 2.02.     Results of Operations and Financial Condition

On December 17, 2018, Red Hat, Inc. announced its financial results for the fiscal third quarter ended November 30, 2018. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

In the press release, we disclosed non-GAAP financial information for the three and nine months ended November 30, 2018 and November 30, 2017. These non-GAAP disclosures include non-GAAP revenue growth rates measured on a constant currency basis, non-GAAP cash flow provided by operations and a reconciliation of GAAP net income to non-GAAP adjusted net income based on:

  • the impact of non-cash share-based compensation expense under FASB ASC Section 718 Compensation-Stock Compensation ("ASC 718") and the related discrete tax benefit or expense;
  • the impact of expense associated with the amortization of intangible assets primarily related to business combinations;
  • the impact of non-cash interest expense related to the debt discount described below; and
  • the impact of transaction costs related to business combinations.

These non-GAAP disclosures should not be used as a substitute for our GAAP results, but rather read in conjunction with our GAAP results. The non-GAAP financial measures we disclosed and the methods we used to calculate non-GAAP results are not in accordance with GAAP and may be materially different from the non-GAAP measures and methods used by other companies.

We disclosed non-GAAP revenue growth rates for subscription revenue, training and services revenue and total revenue measured on a constant currency basis for the three and nine months ended November 30, 2018 in an effort to provide a comparable framework for assessing how our business performed when compared to the three and nine months ended November 30, 2017 in light of the effect of exchange rate differences. Approximately 44.1% and 44.9% of our revenue for the three and nine months ended November 30, 2018, respectively, was produced by sales outside the United States. The income statements of our non-U.S. operations are translated into U.S. dollars using the average exchange rates for each month in an applicable period. To the extent the U.S. dollar weakens against foreign currencies, the translation of transactions denominated in foreign currencies results in increased revenue, as stated in U.S. dollars, for our non-U.S. operations. Similarly, revenue, as stated in U.S. dollars, for our non-U.S. operations decreases if the U.S. dollar strengthens against foreign currencies. Using the average foreign currency exchange rates for the three and nine months ended November 30, 2017, our subscription revenue for the three and nine months ended November 30, 2018 would have been higher than we reported by $11.8 million and lower than we reported by $6.1 million, respectively, our training and services revenue for the three and nine months ended November 30, 2018 would have been higher than we reported by $3.7 million and $2.7 million, respectively, and our total revenue for the three and nine months ended November 30, 2018 would have been higher than we reported by $15.5 million and lower than we reported by $3.4 million, respectively.

We also disclosed non-GAAP deferred revenue growth rates measured on a constant currency basis for the twelve months ended November 30, 2018 and revenue growth rates by geographic segment measured on a constant currency basis for the three and nine months ended November 30, 2018 in an effort to provide a comparable framework for assessing how our business performed when compared to the twelve months ended November 30, 2017 and the three and nine months ended November 30, 2017, respectively, in light of the effect of exchange rate differences.

We excluded GAAP share-based compensation expense and the related discrete tax benefit or expense for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share because share-based compensation expense is a non-cash expense, which may vary significantly from period to period as a result of changes not directly or immediately related to the particular period’s operational performance. For example, the amount recognized for share-based awards is directly related to the underlying share price of our common stock as of the date of grant, which, in the short-term, may not be directly related to our operational performance. Consequently, management believes that by excluding share-based compensation expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude share-based compensation expense are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash, share-based compensation expense of $56.3 million and $155.0 million for the three and nine months ended November 30, 2018, respectively, and $52.3 million and $143.0 million for the three and nine months ended November 30, 2017, respectively, versus the non-GAAP exclusion of such expense.


Amortization expense related to intangible assets results primarily from business combinations. These costs are fixed in connection with an acquisition, are then amortized over a number of years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management generally does not consider such costs for the purpose of evaluating the performance of the business or its managers or when making decisions to allocate resources. Management also believes that non-GAAP measures of profitability that exclude amortization expense related to intangible assets are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash amortization expense of $9.7 million and $29.3 million for the three and nine months ended November 30, 2018, respectively, and $8.0 million and $23.4 million for the three and nine months ended November 30, 2017, respectively, versus the non-GAAP exclusion of such expense.

We also excluded GAAP non-cash interest expense relating to our 0.25% convertible senior notes issued in October 2014 for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be accounted for as separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s non-convertible debt borrowing rate. This results in the debt component being treated as though it was issued at a discount, with the debt discount being accreted as additional non-cash interest expense over the term of the notes using the effective interest method. As a result, management believes that excluding this non-cash interest expense from the accretion of the debt discount in calculating our non-GAAP measures is useful because this incremental interest expense does not represent a cash outflow and is not indicative of our ongoing operational performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash interest expense related to the debt discount of $3.3 million and $12.2 million for the three and nine months ended November 30, 2018, respectively, and $4.9 million and $14.7 million for the three and nine months ended November 30, 2017, respectively, versus the non-GAAP exclusion of such expense. Additionally, for the purpose of calculating non-GAAP adjusted net income per share, non-GAAP diluted weighted average shares outstanding excludes 3.6 million shares and 3.7 million shares for the three and nine months ended November 30, 2018, respectively, and 4.1 million shares and 2.9 million shares for the three and nine months ended November 30, 2017, respectively, from our calculation of GAAP diluted weighted average shares outstanding. We exclude these shares that are issuable upon conversions of our convertible notes because we expect that the dilution from such shares will be offset by the convertible note hedge transactions entered into in October 2014 in connection with the issuance of the convertible notes.

We also excluded GAAP expense relating to costs we incurred in connection with business combinations. These costs include acquisition-related charges such as transaction expenses. Significant expense can be incurred in connection with an acquisition, such as our pending merger with International Business Machines Corporation (“IBM”), that we would not have otherwise incurred in the periods presented as part of our continuing operations. Additionally, we do not acquire or dispose of businesses on a predictable cycle and the terms of each acquisition are unique and can vary significantly from other acquisitions. As a result, management believes that by excluding such expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude acquisition-related charges are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP acquisition-related expense of $28.0 million and $28.1 million for the three and nine months ended November 30, 2018, respectively, and GAAP acquisition-related expense adjustment of less than $1.0 million and GAAP acquisition-related expense of $1.3 million for the three and nine months ended November 30, 2017, respectively, versus the non-GAAP exclusion of such expense or adjustment.

We recently adopted ASU 2016-15: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which now requires us to classify the portion of repayments of the convertible notes that is attributable to the debt discount as a cash outflow from operating activities rather than a cash outflow from financing activities. As a result, we have disclosed non-GAAP net cash provided by operating activities for the three and nine months ended November 30, 2018, which removes the impact of this classification as a cash outflow from operating activities, in an effort to provide a comparable framework for assessing how our business performed when compared to the three and nine months ended November 30, 2017. Our reconciliation of GAAP net cash provided by operating activities to non-GAAP net cash provided by operating activities includes the portion of repayments of convertible notes attributable to debt discount of less than $1.0 million and $33.1 million for the three and nine months ended November 30, 2018, respectively, versus the non-GAAP exclusion of such repayments.


On August 21, 2018, the Internal Revenue Service issued Notice 2018-68 providing guidance regarding amendments to Section 162(m) of the Internal Revenue Code contained in the Tax Cuts and Jobs Act that limit tax deductions for compensation granted to certain executives. As a result of this guidance, our GAAP provision for income taxes for the three and nine months ended November 30, 2018 includes the impact of this tax deduction limitation. In an effort to provide a comparable framework for our non-GAAP provision for income taxes for the three and nine months ended November 30, 2017, the calculation of our non-GAAP provision for income taxes for the three and nine months ended November 30, 2018 excludes $3.5 million and $8.5 million, respectively, of tax expense for share-based compensation that is no longer deductible.

Additionally, the GAAP provision for income taxes for the three and nine months ended November 30, 2018 includes the impact of the non-deductible merger related costs incurred in connection with our pending merger with IBM. In an effort to reflect the impact of the non-deductible merger related costs on the non-GAAP provision for income taxes, the calculation of our non-GAAP provision for income taxes for both the three and nine months ended November 30, 2018 excludes $8.6 million of tax expense for non-deductible merger related costs.

Management believes that these adjusted non-GAAP results, when read in conjunction with the GAAP results, offer a useful view of our business performance in that they provide a more consistent means of comparing performance to prior periods in light of the effect of exchange rate differences, potential variations in the amount of expense for share-based awards recognized from period to period due to changes in the price of our common stock and the related tax benefit or expense, the irregularity with which management acquires intangible assets, the non-cash interest expense related to the debt discount, the exclusion of any share dilution that is expected to be offset by the convertible note hedge transactions, transaction costs we incurred in connection with business combinations, our reclassification of a portion of repayments of the convertible notes that is attributable to the debt discount as a cash outflow from operating activities rather than a cash outflow from financing activities, changes in the deductibility of share-based compensation granted to certain executives and the impact of the non-deductible merger related costs in connection with our pending merger with IBM. Management also uses non-GAAP measures as a component of its regular internal reporting to evaluate performance of the business and compare it to prior performance, to make operating decisions, including internal budgeting and the calculation of incentive compensation, and to forecast future performance. Our disclosure of non-GAAP financial measures allows investors to evaluate the Company's performance using information used by management.

The information furnished pursuant to Item 2.02 of this Form 8-K, including Exhibit 99.1 referenced herein, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01.     Financial Statements and Exhibits

            (d)  Exhibits

                       Exhibit No.     Description         

                       99.1                  Press Release dated December 17, 2018


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:

December 17, 2018

RED HAT, INC.

 

By:

/s/ ERIC R. SHANDER

 

Name:

Eric R. Shander

Title:

Executive Vice President and Chief Financial Officer

View differences made from one to another to evaluate Red Hat Inc's financial trajectory

Compare SEC Filings Year-over-Year (YoY) and Quarter-over-Quarter (QoQ)
Sample 10-K Year-over-Year (YoY) Comparison

Compare this 8-K Corporate News to its predecessor by reading our highlights to see what text and tables were  removed  ,   added    and   changed   by Red Hat Inc.

Continue

Assess how Red Hat Inc's management team is paid from their Annual Proxy

Definitive Proxy Statement (Form DEF 14A)
Screenshot example of actual Proxy Statement

Red Hat Inc's Definitive Proxy Statement (Form DEF 14A) filed after their 2018 10-K Annual Report includes:

  • Voting Procedures
  • Board Members
  • Executive Team
  • Salaries, Bonuses, Perks
  • Peers / Competitors

Continue

Tools

Material Contracts, Statements, Certifications & more

Red Hat Inc provided additional information to their SEC Filing as exhibits

Ticker: RHT
CIK: 1087423
Form Type: 8-K Corporate News
Accession Number: 0001157523-18-002595
Submitted to the SEC: Mon Dec 17 2018 4:21:15 PM EST
Accepted by the SEC: Mon Dec 17 2018
Period: Monday, December 17, 2018
Industry: Computer Programming Data Processing
Events:
  1. Earnings Release
  2. Financial Exhibit

External Resources:
Stock Quote
Social Media

Bookmark the Permalink:
https://last10k.com/sec-filings/rht/0001157523-18-002595.htm