Last10K.com

Red Hat Inc (RHT) SEC Filing 8-K Material Event for the period ending Monday, March 25, 2019

Red Hat Inc

CIK: 1087423 Ticker: RHT

Exhibit 99.1

Red Hat Reports Fourth Quarter and Fiscal Year 2019 Results

  • Fourth quarter total revenue of $879 million, up 14% year-over-year, or 17% in constant currency; full fiscal year total revenue of $3.4 billion, up 15% year-over-year, or 16% in constant currency
  • Fourth quarter Application Development-related and other emerging technology subscription revenue of $225 million, up 30% year-over-year, or 34% in constant currency; full fiscal year Application Development-related and other emerging technology subscription revenue of $816 million, up 31% year-over-year, or 32% in constant currency
  • Fourth quarter training and services revenue of $105 million, up 18% year-over-year, or 23% in constant currency; full fiscal year total training and services revenue of $413 million, up 19% year-over-year, or 21% in constant currency
  • Year-end deferred revenue balance of $3.0 billion, up 15% year-over-year, or 18% in constant currency

RALEIGH, N.C.--(BUSINESS WIRE)--March 25, 2019--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the fourth quarter of fiscal year 2019 ended February 28, 2019.

“Enterprise organizations are continuing to move to hybrid cloud environments, which is contributing to strong growth in Red Hat’s cloud enabling technologies,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Across the portfolio, our total number of customers with active subscriptions greater than $5 million increased 33% year-over-year in fiscal year 2019. Also key to that growth is the increasing number of Ansible and OpenShift customers, which now total more than 1,300 and 1,000, respectively, as of the end of fiscal year 2019.”

“In FY19, we continued to strengthen our strategic relationships with enterprise organizations, which was evidenced by continued growth in sizeable commitments. We saw a 17% year-over-year increase in the number of deals over $1 million, despite the smaller base of large renewals in fiscal year 2019. These deals included broad adoption across Red Hat’s portfolio of technologies, with cross-selling up 22% from the previous year,” said Eric Shander, Executive Vice President and Chief Financial Officer. “Additionally, our total backlog was $4.1 billion, a 22% increase year-over-year. This is the third consecutive year where backlog increased at a rate of more than 20% year-over-year, which further reflects the forward momentum of our business.”

Revenue: Total revenue for the quarter was $879 million, up 14% year-over-year, or 17% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $774 million, up 13% year-over-year, or 16% measured in constant currency. Subscription revenue in the quarter was 88% of total revenue.


Full fiscal year 2019 total revenue was $3.4 billion, up 15% year-over-year, or 16% measured in constant currency. Subscription revenue for the full fiscal year was $2.9 billion, up 15% year-over-year, and 15% measured in constant currency. Subscription revenue in the full fiscal year was 88% of total revenue.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $549 million, an increase of 8% year-over-year, or 10% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $225 million, an increase of 30% year-over-year, or 34% measured in constant currency.

Full fiscal year subscription revenue from Infrastructure-related offerings was $2.1 billion, an increase of 9% year-over-year, or 10% measured in constant currency. Full fiscal year subscription revenue from Application Development-related and other emerging technology offerings was $816 million, an increase of 31% year-over-year, or 32% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $157 million, up 18% 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 fourth quarter was $227 million, up 19% year-over-year. For the fourth quarter, GAAP operating margin was 17.8% and non-GAAP adjusted operating margin was 25.8%. Non-GAAP references in this release are detailed in the tables below.

Full fiscal year GAAP operating income was $512 million, an increase of 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 operating income was $795 million, up 13% year-over-year. Full fiscal year GAAP operating margin was 15.2% and non-GAAP operating margin was 23.7%.

Net Income: GAAP net income for the quarter was $139 million, or $0.75 diluted earnings per share (“EPS”), compared with GAAP net loss of $12 million, or $0.07 diluted loss per share, in the year-ago quarter. The year-ago quarter included a one-time tax charge of $123 million related to the Tax Cuts and Jobs Act enacted into law in December 2017.

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 $214 million, or $1.16 diluted EPS, as compared to $168 million, or $0.92 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.

Full fiscal year GAAP net income was $434 million, or $2.33 diluted EPS, compared with $262 million, or $1.42 diluted EPS, in the prior fiscal year. The prior fiscal year included a one-time tax charge of $123 million related to the Tax Cuts and Jobs Act enacted into law in December 2017.

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 net income for the full fiscal year was $679 million, or $3.69 diluted EPS, as compared to $544 million, or $3.00 diluted EPS, in the prior fiscal year.


Cash: GAAP operating cash flow was $397 million for the fourth quarter, up 10% on a year-over-year basis. Non-GAAP operating cash flow adjusts for the impact of our 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 fourth quarter that is attributable to debt discount to be classified as operating cash flow. Non-GAAP operating cash flow, which excludes this impact of approximately $27 million, was $424 million, up 17% on a year-over-year basis compared to non-GAAP operating cash flow. Full fiscal year GAAP operating cash flow was $1.0 billion, up 10% on a year-over-year basis. Full fiscal year non-GAAP operating cash flow, which excludes approximately $60 million of impact from adoption of ASU 2016-15, was $1.1 billion, up 16% on a year-over-year basis compared to non-GAAP operating cash flow. Total convertible note repayments were $498 million as of February 28, 2019 with a remaining principal value of $307 million.

Total cash, cash equivalents and investments as of February 28, 2019 was $2.4 billion after repurchasing approximately $413 million, or approximately 0.9 million shares, of common stock in fiscal year 2019. The remaining balance in the current stock repurchase authorization as of February 28, 2019 was approximately $737.2 million.

Deferred revenue and backlog: Total backlog for fiscal year 2019 was in excess of $4.1 billion, up 22% year-over-year. We define total backlog as total deferred revenue, which has been billed, plus the value of non-cancellable subscription agreements not yet billed or reflected in our financial statements and the value of service agreements not yet billed or reflected in our financial statements that we believe to be firm. At the end of the fiscal year, the Company’s total deferred revenue balance was $3.0 billion, an increase of 15% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $77 million year-over-year. On a constant currency basis, total deferred revenue would have increased 18% year-over-year.

The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $1.0 billion as of February 28, 2019, compared with the ending balance in excess of $775 million reported for fiscal year 2018. The portion of total backlog to be billed during fiscal year 2020 was in excess of $490 million as of February 28, 2019, compared with in excess of $450 million for the fiscal year ended February 28, 2018.

Due to the pending transaction with International Business Machines Corporation, Red Hat will not be hosting a conference call for its fourth quarter 2019 business results and will not be providing an outlook for its fiscal 2020.

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 our pending merger with International Business Machines Corporation, 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   Fiscal Year Ended
February 28,   February 28, February 28,   February 28,
2019 2018 (1) 2019 2018 (1)
Revenue:
Subscriptions $ 774,178 $ 683,276 $ 2,949,059 $ 2,574,178
Training and services 104,819   89,056   413,010   346,283
Total revenue 878,997   772,332   3,362,069   2,920,461
 
Cost of revenue:
Subscriptions 56,298 48,105 213,843 185,339
Training and services 76,207   64,520   284,408   246,458
Total cost of revenue 132,505   112,625   498,251   431,797
 
Gross profit 746,492 659,707 2,863,818 2,488,664
 
Operating expense:
Sales and marketing 341,491 314,563 1,378,278 1,195,286
Research and development 171,461 153,778 668,542 578,330
General and administrative 76,978   58,886   304,766   239,316
Total operating expense 589,930   527,227   2,351,586   2,012,932
 
Income from operations 156,562 132,480 512,232 475,732
Interest income 7,508 5,024 30,531 18,493
Interest expense 4,412 6,223 19,838 24,569
Other income (expense), net 245   11,368   (4,870 ) 8,335
 
Income before provision for income taxes 159,903 142,649 518,055 477,991
Provision for income taxes 20,409   154,809   84,067   216,140
Net income (loss) $ 139,494   $ (12,160 ) $ 433,988   $ 261,851
 
Net income (loss) per share:
Basic $ 0.79 $ (0.07 ) $ 2.46 $ 1.48
Diluted $ 0.75 $ (0.07 ) $ 2.33 $ 1.42
Weighted average shares outstanding:
Basic 176,808 177,034 176,773 177,150
Diluted 187,046 177,034 186,321 184,602
 

(1) As adjusted to reflect the impact of the retrospective application of ASC 606.

 

 
RED HAT, INC.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 
  February 28,   February 28,
2019 2018 (1)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash $ 1,883,096 $ 1,724,132
Investments in debt and equity securities, short-term 293,361 318,358
Accounts receivable, net 980,188 806,744
Prepaid expenses 282,507 267,197
Other current assets 24,504   25,666  
Total current assets 3,463,656 3,142,097
 
Property and equipment, net 198,969 206,105
Goodwill 1,276,853 1,288,830
Identifiable intangibles, net 206,083 224,953
Investments in debt securities, long-term 248,512 430,442
Deferred tax assets, net 112,568 92,606
Other assets, net 81,648   89,460  
Total assets $ 5,588,289   $ 5,474,493  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 491,259 $ 427,139
Deferred revenue, short-term 2,161,206 1,853,719
Other current obligations 282 843
Convertible notes 69,827   23,806  
Total current liabilities 2,722,574 2,305,507
 
Deferred revenue, long-term 821,218 741,453
Convertible notes 231,540 744,194
Other long-term obligations 199,025 205,215
Stockholders’ equity:
Common stock 24 24
Additional paid-in capital 2,791,895 2,416,080
Retained earnings 2,054,069 1,619,688
Treasury stock, at cost (3,189,434 ) (2,525,072 )
Accumulated other comprehensive loss (42,622 ) (32,596 )
Total stockholders’ equity 1,613,932   1,478,124  
Total liabilities and stockholders’ equity $ 5,588,289   $ 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   Fiscal Year Ended
February 28,   February 28, February 28,   February 28,
2019 2018 (1) 2019 2018 (1)
Cash flows from operating activities:
Net income (loss) $ 139,494 $ (12,160 ) $ 433,988 $ 261,851
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 28,551 25,597 109,046 97,138
Amortization of debt discount and transaction costs 4,295 5,661 18,765 22,401
Repayments of convertible notes attributable to debt discount (26,878 ) (59,993 )
Deferred income taxes (16,988 ) (26,526 ) (18,693 ) (18,695 )
Share-based compensation expense 54,127 49,266 209,096 192,249
Net amortization of bond premium on debt securities available for sale 81 1,417 1,623 8,405
Other 2,062 (12,818 ) 5,986 (11,500 )
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (247,186 ) (266,018 ) (188,980 ) (154,119 )
Other receivables 45,618 16,193 2,063 (4,019 )
Prepaid expenses (51,014 ) (61,397 ) (16,449 ) (68,228 )
Accounts payable and accrued expenses 15,441 179,588 54,061 161,834
Deferred revenue 449,049 461,199 463,782 432,182
Other 451   2,061   (1,513 ) 3,639  
Net cash provided by operating activities 397,103   362,063   1,012,782   923,138  
 
Cash flows from investing activities:
Purchase of investment in debt securities available for sale (14,016 ) (217,951 ) (299,789 )
Proceeds from maturities of investment in debt securities available for sale 143,384 77,789 402,844 426,074
Proceeds from sales of investment in debt securities available for sale 179,997 8,491 199,614
Proceeds from sales of strategic equity investments 14,204 1,300 14,204
Acquisition of businesses, net of cash acquired (231,200 ) (11,550 ) (315,081 )
Purchase of developed software and other intangible assets (3,416 ) (3,849 ) (10,543 ) (16,720 )
Purchase of property and equipment (16,421 ) (16,699 ) (61,266 ) (84,967 )
Other (379 )   (1,365 ) (189 )
Net cash provided by (used in) investing activities 123,168   6,226   109,960   (76,854 )
 
Cash flows from financing activities:
Proceeds from exercise of common stock options 244 354 2,075 4,895
Proceeds from employee stock purchase program 18,706 16,809 62,062 50,097
Payments related to net settlement of share-based compensation awards (4,290 ) (3,276 ) (131,895 ) (89,506 )
Purchase of treasury stock (412,845 ) (237,002 )
Payments on other borrowings (163 ) (340 ) (913 ) (1,547 )
Repayments of convertible notes attributable to principal (196,431 ) (30 ) (438,410 ) (36 )
Net cash (used in) provided by in financing activities (181,934 ) 13,517   (919,926 ) (273,099 )
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash 5,487   11,154   (43,852 ) 60,139  
Net increase in cash, cash equivalents and restricted cash 343,824 392,960 158,964 633,324
Cash, cash equivalents and restricted cash at beginning of the period 1,539,272   1,331,172   1,724,132   1,090,808  
Cash, cash equivalents and restricted cash at end of the period $ 1,883,096   $ 1,724,132   $ 1,883,096   $ 1,724,132  
 

(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   Fiscal Year Ended
February 28,   February 28, February 28,   February 28,
2019 2018 (1) 2019 2018 (1)
 
Reconciliation items included in Consolidated Statements of Operations:
 
Non-cash share-based compensation expense:
Cost of revenue $ 5,133 $ 4,453 $ 19,811 $ 16,862
Sales and marketing 23,554 22,450 91,116 87,158
Research and development 16,795 14,405 64,886 57,008
General and administrative   8,645     7,958     33,283     31,221  
Total share-based compensation expense $ 54,127   $ 49,266   $ 209,096   $ 192,249  
 
Amortization of intangible assets expense:
Cost of revenue $ 6,615 $ 4,214 $ 24,495 $ 16,705
Sales and marketing 1,391 1,561 5,549 6,195
Research and development 35 35 138 138
General and administrative   2,451     2,270     9,590     8,407  
Total amortization of intangible assets expense $ 10,492   $ 8,080   $ 39,772   $ 31,445  
 
Total non-cash interest expense related to the debt discount $ 2,442   $ 4,961   $ 14,665   $ 19,654  
 
Transaction costs related to business combinations $ 5,964   $ 728   $ 34,050   $ 2,038  
 
Reconciliation of GAAP results to non-GAAP adjusted results:
 
GAAP net income (loss) $ 139,494 $ (12,160 ) $ 433,988 $ 261,851
GAAP provision for income taxes   20,409     154,809     84,067     216,140  
GAAP income before provision for income taxes $ 159,903 $ 142,649 $ 518,055 $ 477,991
 
Add: Non-cash share-based compensation expense 54,127 49,266 209,096 192,249
Add: Amortization of intangible assets expense 10,492 8,080 39,772 31,445
Add: Non-cash interest expense related to the debt discount 2,442 4,961 14,665 19,654
Add: Transaction costs related to business combinations   5,964     728     34,050     2,038  
Non-GAAP adjusted income before provision for income taxes $ 232,928 $ 205,684 $ 815,638 $ 723,377
Non-GAAP provision for income taxes (2)   18,976     37,744     136,680     179,410  
Non-GAAP adjusted net income (basic and diluted) $ 213,952   $ 167,940   $ 678,958   $ 543,967  
 
Non-GAAP adjusted diluted weighted average shares outstanding:
GAAP diluted weighted average shares outstanding 187,046 177,034 186,321 184,602
Dilutive effect of outstanding equity awards, convertible notes and warrants 10,699
Dilution offset from convertible note hedge transactions   (2,447 )   (4,728 )   (2,234 )   (3,445 )
Non-GAAP diluted weighted average shares outstanding   184,599     183,005     184,087     181,157  
 
Non-GAAP adjusted net income per share:
Basic $ 1.21 $ 0.95 $ 3.84 $ 3.07
Diluted $ 1.16 $ 0.92 $ 3.69 $ 3.00
 

(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   Fiscal Year Ended
February 28,   February 28, February 28,   February 28,
2019 2018 (1) 2019 2018 (1)
(2) Non-GAAP provision for income taxes:
Non-GAAP adjusted income before provision for income taxes $ 232,928 $ 205,684 $ 815,638 $ 723,377
GAAP estimated annual effective tax rate   13.8 %   17.8 %   20.0 %   24.1 %
Provision for income taxes on non-GAAP adjusted income before adjustments $ 30,853 $ 35,592 $ 163,128 $ 174,334
Certain non-deductible share-based compensation (3,156 ) (11,664 )
Non-deductible merger related costs (4,321 ) (12,887 )
Discrete tax (benefit) expense, excluding discrete benefits related to share-based compensation   (4,400 )   2,152     (1,897 )   5,076  
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 $ 18,976   $ 37,744   $ 136,680   $ 179,410  
 
GAAP gross profit $ 746,492 $ 659,707 $ 2,863,818 $ 2,488,664
Add: Non-cash share-based compensation expense 5,133 4,453 19,811 16,862
Add: Amortization of intangible assets expense   6,615     4,214     24,495     16,705  
Non-GAAP gross profit $ 758,240   $ 668,374   $ 2,908,124   $ 2,522,231  
 
Non-GAAP gross margin 86.3 % 86.5 % 86.5 % 86.4 %
 
GAAP operating expenses $ 589,930 $ 527,227 $ 2,351,586 $ 2,012,932
Deduct: Non-cash share-based compensation expense (48,994 ) (44,813 ) (189,285 ) (175,387 )
Deduct: Amortization of intangible assets expense (3,877 ) (3,866 ) (15,277 ) (14,740 )
Deduct: Transaction costs related to business combinations   (5,964 )   (728 )   (34,050 )   (2,038 )
Non-GAAP adjusted operating expenses $ 531,095   $ 477,820   $ 2,112,974   $ 1,820,767  
 
GAAP operating income $ 156,562 $ 132,480 $ 512,232 $ 475,732
Add: Non-cash share-based compensation expense 54,127 49,266 209,096 192,249
Add: Amortization of intangible assets expense 10,492 8,080 39,772 31,445
Add: Transaction costs related to business combinations   5,964     728     34,050     2,038  
Non-GAAP adjusted operating income $ 227,145   $ 190,554   $ 795,150   $ 701,464  
 
Non-GAAP adjusted operating margin 25.8 % 24.7 % 23.7 % 24.0 %
 
GAAP net cash provided by operating activities $ 397,103 $ 362,063 $ 1,012,782 $ 923,138
Repayments of convertible notes attributable to debt discount   26,878             59,993        
Non-GAAP net cash provided by operating activities $ 423,981   $ 362,063   $ 1,072,775   $ 923,138  
 

(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
February 28,   February 28,   Year-Over-Year
2019 2018 Growth Rate
Subscription and services revenue:
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 549,481 $ 510,013 7.7 %
Adjustment for currency impact 12,389    
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 561,870 $ 510,013 10.2 %
 
Application Development-related and other emerging technology offerings $ 224,697 $ 173,263 29.7 %
Adjustment for currency impact 6,972    
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 231,669 $ 173,263 33.7 %
 
GAAP subscription revenue $ 774,178 $ 683,276 13.3 %
Adjustment for currency impact 19,361    
Non-GAAP subscription revenue on a constant currency basis $ 793,539 $ 683,276 16.1 %
 
GAAP training and services revenue $ 104,819 $ 89,056 17.7 %
Adjustment for currency impact 4,289    
Non-GAAP training and services revenue on a constant currency basis $ 109,108 $ 89,056 22.5 %
 
GAAP total revenue $ 878,997 $ 772,332 13.8 %
Adjustment for currency impact 23,650    
Non-GAAP total revenue on a constant currency basis $ 902,647   $ 772,332   16.9 %
 
Fiscal Year Ended
February 28, February 28, Year-Over-Year
2019 2018 Growth Rate
GAAP subscription revenue by offering type:
Infrastructure-related offerings $ 2,132,635 $ 1,950,396 9.3 %
Adjustment for currency impact 6,826    
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis $ 2,139,461 $ 1,950,396 9.7 %
 
Application Development-related and other emerging technology offerings $ 816,424 $ 623,782 30.9 %
Adjustment for currency impact 5,779    
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis $ 822,203 $ 623,782 31.8 %
 
GAAP subscription revenue $ 2,949,059 $ 2,574,178 14.6 %
Adjustment for currency impact 12,605    
Non-GAAP subscription revenue on a constant currency basis $ 2,961,664 $ 2,574,178 15.1 %
 
GAAP training and services revenue $ 413,010 $ 346,283 19.3 %
Adjustment for currency impact 7,013    
Non-GAAP training and services revenue on a constant currency basis $ 420,023 $ 346,283 21.3 %
 
GAAP total revenue $ 3,362,069 $ 2,920,461 15.1 %
Adjustment for currency impact 19,618    
Non-GAAP total revenue on a constant currency basis $ 3,381,687   $ 2,920,461   15.8 %
 

 
RED HAT, INC.
SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands)

 
Change in deferred revenue balances:        
Deferred Revenue
Current Long-Term Total
Balance at February 28, 2018 $ 1,853,719 $ 741,453 $ 2,595,172
Constant currency change in deferred revenue 355,812 107,970 463,782
Impact from foreign currency translation   (48,325 )   (28,205 )   (76,530 )
Balance at February 28, 2019 $ 2,161,206   $ 821,218   $ 2,982,424  
 
Year-over-year growth rate 16.6 % 10.8 % 14.9 %
Year-over-year growth rate on a constant currency basis 19.2 % 14.6 % 17.9 %
 
Revenue growth by geographical segment:
Americas EMEA APAC Consolidated
Total revenue for the three months ended February 28, 2019 $ 550,333 $

203,322

$

125,342

$ 878,997
Adjustment for currency impact   6,131     13,295     4,224     23,650  
Total revenue on a constant currency basis for the three months ended February 28, 2019 $ 556,464   $

216,617

  $

129,566

  $ 902,647  
 
Total revenue for the three months ended February 28, 2018 $ 484,492   $ 180,087   $ 107,753   $ 772,332  
 
Year-over-year growth rate 13.6 % 12.9 % 16.3 % 13.8 %
Year-over-year growth rate on a constant currency basis 14.9 % 20.3 % 20.2 % 16.9 %
 
Total revenue for the fiscal year ended February 28, 2019 $ 2,092,329 $ 786,503 $ 483,237 $ 3,362,069
Adjustment for currency impact   19,093     (5,429 )   5,954     19,618  
Total revenue on a constant currency basis for the fiscal year ended February 28, 2019 $ 2,111,422   $ 781,074   $ 489,191   $ 3,381,687  
 
Total revenue for the fiscal year ended February 28, 2018 $ 1,858,004   $ 657,197   $ 405,260   $ 2,920,461  
 
Year-over-year growth rate 12.6 % 19.7 % 19.2 % 15.1 %
Year-over-year growth rate on a constant currency basis 13.6 % 18.8 % 20.7 % 15.8 %
 

 

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:
Sarah Walas
Red Hat, Inc.
(919) 754-4627
swalas@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): March 25, 2019



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 March 25, 2019, Red Hat, Inc. announced its financial results for the fiscal fourth quarter and fiscal year ended February 28, 2019. 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 months and fiscal year ended February 28, 2019 and February 28, 2018. 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 months and fiscal year ended February 28, 2019 in an effort to provide a comparable framework for assessing how our business performed when compared to the three months and fiscal year ended February 28, 2018 in light of the effect of exchange rate differences. Approximately 46.5% and 45.3% of our revenue for the three months and fiscal year ended February 28, 2019, 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 months and fiscal year ended February 28, 2018, our subscription revenue for the three months and fiscal year ended February 28, 2019 would have been higher than we reported by $19.4 million and $12.6 million, respectively, our training and services revenue for the three months and fiscal year ended February 28, 2019 would have been higher than we reported by $4.3 million and $7.0 million, respectively, and our total revenue for the three months and fiscal year ended February 28, 2019 would have been higher than we reported by $23.7 million and $19.6 million, respectively.

We also disclosed non-GAAP deferred revenue growth rates measured on a constant currency basis for the fiscal year ended February 28, 2019 and revenue growth rates by geographic segment measured on a constant currency basis for the three months and fiscal year ended February 28, 2019 in an effort to provide a comparable framework for assessing how our business performed when compared to the fiscal year ended February 28, 2018 and the three months and fiscal year ended February 28, 2018, 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 $54.1 million and $209.1 million for the three months and fiscal year ended February 28, 2019, respectively, and $49.3 million and $192.2 million for the three months and fiscal year ended February 28, 2018, 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 $10.5 million and $39.8 million for the three months and fiscal year ended February 28, 2019, respectively, and $8.1 million and $31.4 million for the three months and fiscal year ended February 28, 2018, 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 $2.4 million and $14.7 million for the three months and fiscal year ended February 28, 2019, respectively, and $5.0 million and $19.7 million for the three months and fiscal year ended February 28, 2018, 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 2.4 million shares and 2.2 million shares for the three months and fiscal year ended February 28, 2019, respectively, and 4.7 million shares and 3.4 million shares for the three months and fiscal year ended February 28, 2018, 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. For the three months ended February 28, 2018, non-GAAP diluted weighted average shares outstanding includes 10.7 million shares to adjust for the dilutive effect of outstanding equity awards, convertible notes and warrants due to the GAAP net loss for the three months ended February 28, 2018.

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 $6.0 million and $34.1 million for the three months and fiscal year ended February 28, 2019, respectively, and less than $1.0 million and $2.0 million for the three months and fiscal year ended February 28, 2018, respectively, versus the non-GAAP exclusion of such expense.


We 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 months and fiscal year ended February 28, 2019, 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 months and fiscal year ended February 28, 2018. 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 $26.9 million and $60.0 million for the three months and fiscal year ended February 28, 2019, 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 months and fiscal year ended February 28, 2019 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 months and fiscal year ended February 28, 2018, the calculation of our non-GAAP provision for income taxes for the three months and fiscal year ended February 28, 2019 excludes $3.2 million and $11.7 million, respectively, of tax expense for share-based compensation that is no longer deductible.

Additionally, the GAAP provision for income taxes for the three months and fiscal year ended February 28, 2019 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 months and fiscal year ended February 28, 2019 excludes $4.3 million and $12.9 million of tax expense for non-deductible merger related costs, respectively.

Moreover, for the three months and fiscal year ended February 28, 2018, we recorded a one-time tax charge of $122.7 million related to the Tax Cuts and Jobs Act enacted into law in December 2017, and our non-GAAP provision for income taxes excludes this one-time tax charge. We excluded this charge from our non-GAAP provision for income taxes as it is a non-recurring expense that was the result of a change in U.S. tax law.

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 March 25, 2019


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:

March 25, 2019

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 2019 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: 0001157523-19-000688
Submitted to the SEC: Mon Mar 25 2019 4:15:32 PM EST
Accepted by the SEC: Mon Mar 25 2019
Period: Monday, March 25, 2019
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/0001157523-19-000688.htm