Red Hat, Inc. SEC Form 8-K Filed June 20, 2019: Current report pursuant to Section 13 or 15(d) Last Updated February 3, 2020 at 11:19 AM ST

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Submission Parts

Sequence Document Type File Name Description
1 SEC Form RED HAT, INC. 8-K
2 SEC Form EXHIBIT 99.1

RED HAT, INC. 8-K

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): June 20, 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))

Securities registered pursuant to Section 12(b) of the Act:
 
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common stock, $0.0001 par value
 
RHT
 
New York Stock Exchange

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 June 20, 2019, Red Hat, Inc. announced its financial results for the fiscal first quarter ended May 31, 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 ended May 31, 2019 and May 31, 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 ended May 31, 2019 in an effort to provide a comparable framework for assessing how our business performed when compared to the three months ended May 31, 2018 in light of the effect of exchange rate differences. Approximately 45.2% of our revenue for the three months ended May 31, 2019 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 ended May 31, 2018, our subscription revenue for the three months ended May 31, 2019 would have been higher than we reported by $24.1 million, our training and services revenue for the three months ended May 31, 2019 would have been higher than we reported by $5.2 million and our total revenue for the three months ended May 31, 2019 would have been higher than we reported by $29.4 million.
We also disclosed non-GAAP deferred revenue growth rates measured on a constant currency basis for the twelve months ended May 31, 2019 and revenue growth rates by geographic segment measured on a constant currency basis for the three months ended May 31, 2019 in an effort to provide a comparable framework for assessing how our business performed when compared to the twelve months ended May 31, 2018 and the three months ended May 31, 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 $50.2 million for the three months ended May 31, 2019 and $46.0 million for the three months ended May 31, 2018 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 $10.1 million for the three months ended May 31, 2019 and $9.9 million for the three months ended May 31, 2018 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 $1.5 million for the three months ended May 31, 2019 and $5.0 million for the three months ended May 31, 2018 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 1.6 million shares for the three months ended May 31, 2019 and 5.7 million shares for the three months ended May 31, 2018 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 $9.9 million for the three months ended May 31, 2019 and less than $1.0 million for the three months ended May 31, 2018 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 ended May 31, 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 ended May 31, 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 $14.0 million for the three months ended May 31, 2019 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 ended May 31, 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 ended May 31, 2018, the calculation of our non-GAAP provision for income taxes for the three months ended May 31, 2019 excludes $1.9 million of tax expense for share-based compensation that is no longer deductible.
Additionally, the GAAP provision for income taxes for the three months ended May 31, 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 the three months ended May 31, 2019 excludes $0.6 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
 
                              
              


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:
June 20, 2019
RED HAT, INC.
     
   
By: /s/ ERIC R. SHANDER
   
Name: Eric R. Shander
   
Title: Executive Vice President and Chief Financial Officer

EXHIBIT 99.1

Exhibit 99.1

Red Hat Reports First Quarter Results for Fiscal Year 2020

  • First quarter total revenue of $934 million, up 15% year-over-year in USD, or 18% in constant currency
  • First quarter Application Development-related and other emerging technology subscription revenue of $235 million, up 24% year-over-year in USD, or 29% in constant currency
  • First quarter training and services revenue of $119 million, up 17% year-over-year in USD, or 22% in constant currency
  • Quarter-end deferred revenue balance of $2.8 billion, up 14% year-over-year in USD, or 17% in constant currency
  • First quarter GAAP operating cash flow of $460 million, up 33% year-over-year

 

RALEIGH, N.C.--(BUSINESS WIRE)--June 20, 2019--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the first quarter of fiscal year 2020 ended May 31, 2019.

“We continue to unlock the potential of developers and enterprises, enabling our customers to succeed in building next generation IT infrastructure and applications,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Customer interest in Red Hat technologies is robust, evidenced by a record attendance of nearly 9,000 attendees at Red Hat Summit, our marquee user event. At the event, we announced the general availability of Red Hat Enterprise Linux 8 and OpenShift 4, building on our track record of delivering innovation that creates business value for our customers. Customer excitement was evident at the event and further reflected in the quarter, where we added more than 90 new OpenShift customers.”

“The first quarter was a strong start to FY20, with double digit growth across a number of our financial metrics, including 15% total revenue growth year-over-year in U.S. dollars, or 18% measured in constant currency; and 24% in U. S. dollars, or 29% in constant currency, growth year-over-year in our Application Development-related and other emerging technology revenue,” said Eric Shander, Executive Vice President and Chief Financial Officer. “Our large deal momentum remained strong, as we doubled the number of deals over $5 million and saw 15% growth in the number of deals over $1 million from the year-ago quarter. Many of these deals contained emerging technologies, including an OpenStack deal for over $5 million and our largest ever storage and hyperconverged deal for over $15 million. The breadth of our success demonstrates that customers can realize significant value across our product portfolio.”


Revenue: Total revenue for the quarter was $934 million, up 15% year-over-year, or 18% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $815 million, up 15% year-over-year, or 18% measured in constant currency. Subscription revenue in the quarter was 87% of total revenue. Services revenue for the quarter was $119 million, up 17% year-over-year, or 22% measured in constant currency.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $580 million, an increase of 11% year-over-year, or 14% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $235 million, an increase of 24% year-over-year, or 29% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $132 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 first quarter was $202 million, up 20% year-over-year. For the first quarter, GAAP operating margin was 14.1% and non-GAAP adjusted operating margin was 21.7%. Non-GAAP references in this release are detailed in the tables below.

Net Income: GAAP net income for the quarter was $141 million, or $0.76 diluted earnings per share (“EPS”), compared with GAAP net income of $113 million, or $0.59 diluted earnings per share, in the year-ago quarter. Included in net income for the quarter is a net tax benefit of $13.2 million primarily related to an intra-entity transfer of assets.

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 $186 million, or $1.00 diluted EPS, as compared to $133 million, or $0.72 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 operating cash flow was $460 million for the first quarter, up 33% 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 first 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 $14 million, was $474 million, up 37% on a year-over-year basis compared to non-GAAP operating cash flow. Total convertible note repayments were $615 million as of May 31, 2019, with a remaining principal value of $190 million. Total cash, cash equivalents and investments as of May 31, 2019 was $2.7 billion.

Deferred revenue: At the end of the first quarter, the Company’s total deferred revenue balance was $2.8 billion, an increase of 14% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $57 million year-over-year. On a constant currency basis, total deferred revenue would have increased 17% year-over-year.  


Due to the pending transaction with International Business Machines Corporation, Red Hat will not be hosting a conference call for its first quarter of fiscal 2020 business results and will not be providing an outlook for its fiscal year 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 Annual Report on Form 10-K (copies of which may be accessed through the Securities and Exchange Commission's website at 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, the Red Hat logo, Red Hat Enterprise Linux and OpenShift 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. The OpenStack word mark is a trademark or registered trademark of OpenStack Foundation in the U.S. and other countries, and is used with the OpenStack Foundation’s permission. Red Hat, Inc. is not affiliated with, endorsed by, or sponsored by the OpenStack Foundation or the OpenStack community.


RED HAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands - except per share amounts)




 

 



Three Months Ended

 



May 31,

 


May 31,

 



2019

 


2018

Revenue:



 

 


 

Subscriptions



$

814,952

 

 


$

711,521

 

Training and services



119,159

 

 


102,009

 

Total revenue



934,111

 

 


813,530

 

 



 

 


 

Cost of revenue:



 

 


 

Subscriptions



61,899

 

 


52,173

 

Training and services



82,384

 

 


70,526

 

Total cost of revenue



144,283

 

 


122,699

 

 



 

 


 

Gross profit



789,828

 

 


690,831

 

 



 

 


 

Operating expense:



 

 


 

Sales and marketing



394,201

 

 


348,815

 

Research and development



182,961

 

 


166,506

 

General and administrative



80,548

 

 


63,354

 

Total operating expense



657,710

 

 


578,675

 

 



 

 


 

Income from operations



132,118

 

 


112,156

 

Interest income



9,254

 

 


7,834

 

Interest expense



1,959

 

 


6,319

 

Other expense, net



766

 

 


2,194

 

 



 

 


 

Income before provision for income taxes



138,647

 

 


111,477

 

Benefit for income taxes



(2,473

)

 


(1,713

)

Net income



$

141,120

 

 


$

113,190

 

 



 

 


 

Net income per share:



 

 


 

Basic



$

0.80

 

 


$

0.64

 

Diluted



$

0.76

 

 


$

0.59

 

Weighted average shares outstanding:



 

 


 

Basic



177,400

 

 


177,302

 

Diluted



186,635

 

 


190,739

 


RED HAT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)







 

 



May 31,
2019

 


February 28,
2019 (1)

ASSETS



 

 


 

Current assets:



 

 


 

Cash, cash equivalents and restricted cash



$

2,295,396

 

 


$

1,883,096

 

Investments in debt securities, short-term



177,625

 

 


293,361

 

Accounts receivable, net



529,115

 

 


980,188

 

Prepaid expenses



250,571

 

 


282,507

 

Other current assets



36,743

 

 


24,504

 

Total current assets



3,289,450

 

 


3,463,656

 

 



 

 


 

Property and equipment, net



200,015

 

 


198,969

 

Operating right-of-use assets, net (2)



224,371

 

 


 

Goodwill



1,273,494

 

 


1,276,853

 

Identifiable intangibles, net



198,914

 

 


206,083

 

Investments in debt securities, long-term



188,172

 

 


248,512

 

Deferred tax assets, net



119,128

 

 


112,568

 

Other assets, net



80,395

 

 


81,648

 

Total assets



$

5,573,939

 

 


$

5,588,289

 

LIABILITIES AND STOCKHOLDERS’ EQUITY



 

 


 

Current liabilities:



 

 


 

Accounts payable and accrued expenses



$

458,456

 

 


$

491,259

 

Deferred revenue, short-term



2,016,488

 

 


2,161,206

 

Other current obligations



256

 

 


282

 

Convertible notes



188,553

 

 


69,827

 

Total current liabilities



2,663,753

 

 


2,722,574

 

 



 

 


 

Deferred revenue, long-term



781,043

 

 


821,218

 

Convertible notes



 

 


231,540

 

Operating lease liabilities (2)



188,133

 

 


 

Other long-term obligations



183,074

 

 


199,025

 

Stockholders’ equity:



 

 


 

Common stock



25

 

 


24

 

Additional paid-in capital



2,853,105

 

 


2,791,895

 

Retained earnings



2,195,189

 

 


2,054,069

 

Treasury stock, at cost



(3,242,725

)

 


(3,189,434

)

Accumulated other comprehensive loss



(47,658

)

 


(42,622

)

Total stockholders’ equity



1,757,936

 

 


1,613,932

 

Total liabilities and stockholders’ equity



$

5,573,939

 

 


$

5,588,289

 


 

(1) Derived from audited financial statements.

(2) Effective March 1, 2019, the Company adopted Accounting Standard Update 2016-02, Leases (Topic 842).


RED HAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)





Three Months Ended

 



May 31,
2019

 


May 31,
2018

Cash flows from operating activities:



 

 


 

Net income



$

141,120

 

 


$

113,190

 

Adjustments to reconcile net income to net cash provided by operating activities:



 

 


 

Depreciation and amortization



36,754

 

 


27,054

 

Amortization of debt discount and transaction costs



1,885

 

 


5,838

 

Repayments of convertible notes attributable to debt discount



(13,981

)

 


 

Share-based compensation expense



50,168

 

 


46,005

 

Net amortization of bond premium on debt securities available for sale



271

 

 


743

 

Other



(872

)

 


(2,298

)

Changes in operating assets and liabilities:



 

 


 

Accounts receivable



445,186

 

 


299,439

 

Other receivables



(12,278

)

 


(35,160

)

Prepaid expenses



28,844

 

 


25,382

 

Accounts payable and accrued expenses



(58,271

)

 


(28,642

)

Deferred revenue



(158,729

)

 


(104,592

)

Other



(143

)

 


(800

)

Net cash provided by operating activities



459,954

 

 


346,159

 

 



 

 


 

Cash flows from investing activities:



 

 


 

Purchase of investment in debt securities available for sale



 

 


(108,336

)

Proceeds from maturities of investment in debt securities available for sale



110,431

 

 


87,004

 

Proceeds from sales of investment in debt securities available for sale



64,899

 

 


525

 

Proceeds from sales of strategic equity investments



 

 


1,300

 

Purchase of developed software and other intangible assets



(4,134

)

 


(2,866

)

Payments for property and equipment



(23,513

)

 


(12,963

)

Other



(124

)

 


(986

)

Net cash provided by (used in) investing activities



147,559

 

 


(36,322

)

 



 

 


 

Cash flows from financing activities:



 

 


 

Proceeds from exercise of common stock options



369

 

 


875

 

Proceeds from employee stock purchase program



7,501

 

 


15,262

 

Payments related to net settlement of share-based compensation awards



(81,274

)

 


(77,094

)

Purchase of treasury stock



 

 


(150,019

)

Proceeds (payments) on other borrowings, net



26

 

 


(299

)

Repayments of convertible notes attributable to principal



(102,163

)

 


(25,953

)

Net cash used in financing activities



(175,541

)

 


(237,228

)

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash



(19,672

)

 


(28,261

)

Net increase in cash, cash equivalents and restricted cash



412,300

 

 


44,348

 

Cash, cash equivalents and restricted cash at beginning of the period



1,883,096

 

 


1,724,132

 

Cash, cash equivalents and restricted cash at end of the period



$

2,295,396

 

 


$

1,768,480

 











 

RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands - except per share amounts)


 



Three Months Ended

 



May 31,

 


May 31,

 



2019

 


2018

 



 

 


 

Reconciliation items included in Consolidated Statements of Operations:



 

 


 

 



 

 


 

Non-cash share-based compensation expense:



 

 


 

Cost of revenue



$

4,945

 

 


$

5,128

 

Sales and marketing



21,904

 

 


19,520

 

Research and development



16,002

 

 


14,782

 

General and administrative



7,317

 

 


6,575

 

Total share-based compensation expense



$

50,168

 

 


$

46,005

 

 



 

 


 

Amortization of intangible assets expense:



 

 


 

Cost of revenue



$

6,316

 

 


$

6,141

 

Sales and marketing



1,194

 

 


1,362

 

Research and development



34

 

 


34

 

General and administrative



2,517

 

 


2,373

 

Total amortization of intangible assets expense



$

10,061

 

 


$

9,910

 

 



 

 


 

Total non-cash interest expense related to the debt discount



$

1,501

 

 


$

5,007

 

 



 

 


 

Transaction costs related to business combinations



$

9,905

 

 


$

11

 

 



 

 


 

Reconciliation of GAAP results to non-GAAP adjusted results:



 

 


 

 



 

 


 

GAAP net income



$

141,120

 

 


$

113,190

 

GAAP provision for income taxes



(2,473

)

 


(1,713

)

GAAP income before provision for income taxes



$

138,647

 

 


$

111,477

 

 



 

 


 

Add: Non-cash share-based compensation expense



50,168

 

 


46,005

 

Add: Amortization of intangible assets expense



10,061

 

 


9,910

 

Add: Non-cash interest expense related to the debt discount



1,501

 

 


5,007

 

Add: Transaction costs related to business combinations



9,905

 

 


11

 

Non-GAAP adjusted income before provision for income taxes



$

210,282

 

 


$

172,410

 

Non-GAAP provision for income taxes (1)



24,307

 

 


39,302

 

Non-GAAP adjusted net income (basic and diluted)



$

185,975

 

 


$

133,108

 

 



 

 


 

Non-GAAP adjusted diluted weighted average shares outstanding:



 

 


 

GAAP diluted weighted average shares outstanding



186,635

 

 


190,739

 

Dilution offset from convertible note hedge transactions



(1,554

)

 


(5,686

)

Non-GAAP diluted weighted average shares outstanding



185,081

 

 


185,053

 

 



 

 


 

Non-GAAP adjusted net income per share:



 

 


 

Basic



$

1.05

 

 


$

0.75

 

Diluted



$

1.00

 

 


$

0.72

 


RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)

 



 

 


 

 



Three Months Ended

 



May 31,

 


May 31,

 



2019

 


2018

(1) Non-GAAP provision for income taxes:



 

 


 

Non-GAAP adjusted income before provision for income taxes



$

210,282

 

 


$

172,410

 

GAAP estimated annual effective tax rate



19.0

%

 


22.5

%

Provision for income taxes on non-GAAP adjusted income before adjustments



$

39,954

 

 


$

38,792

 

Certain non-deductible share-based compensation



(1,864

)

 


 

Non-deductible merger related costs



(591

)

 


 

Discrete tax (benefit) expense, other



(13,192

)

 


510

 

Provision for income taxes on non-GAAP adjusted income, excluding impact from certain non-deductible share-based compensation and non-deductible merger related costs



$

24,307

 

 


$

39,302

 

 



 

 


 

GAAP gross profit



$

789,828

 

 


$

690,831

 

Add: Non-cash share-based compensation expense



4,945

 

 


5,128

 

Add: Amortization of intangible assets expense



6,316

 

 


6,141

 

Non-GAAP gross profit



$

801,089

 

 


$

702,100

 

 



 

 


 

Non-GAAP gross margin



85.8

%

 


86.3

%

 



 

 


 

GAAP operating expenses



$

657,710

 

 


$

578,675

 

Deduct: Non-cash share-based compensation expense



(45,223

)

 


(40,877

)

Deduct: Amortization of intangible assets expense



(3,745

)

 


(3,769

)

Deduct: Transaction costs related to business combinations



(9,905

)

 


(11

)

Non-GAAP adjusted operating expenses



$

598,837

 

 


$

534,018

 

 



 

 


 

GAAP operating income



$

132,118

 

 


$

112,156

 

Add: Non-cash share-based compensation expense



50,168

 

 


46,005

 

Add: Amortization of intangible assets expense



10,061

 

 


9,910

 

Add: Transaction costs related to business combinations



9,905

 

 


11

 

Non-GAAP adjusted operating income



$

202,252

 

 


$

168,082

 

 



 

 


 

Non-GAAP adjusted operating margin



21.7

%

 


20.7

%

 



 

 


 

GAAP net cash provided by operating activities



$

459,954

 

 


$

346,159

 

Repayments of convertible notes attributable to debt discount



13,981

 

 


 

Non-GAAP net cash provided by operating activities



$

473,935

 

 


$

346,159

 


RED HAT, INC.

RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS

(Unaudited)

(In thousands)





Three Months Ended

 



May 31,

 


May 31,

 


Year-Over-Year

 



2019

 


2018

 


Growth Rate

Subscription and services revenue:



 

 


 

 


 

GAAP subscription revenue by offering type:



 

 


 

 


 

Infrastructure-related offerings



$

580,306

 

 


$

522,402

 

 


11.1%

Adjustment for currency impact



15,207

 

 


 

 


 

Non-GAAP Infrastructure-related subscription revenue on a constant currency basis



$

595,513

 

 


$

522,402

 

 


14.0%

 



 

 


 

 


 

Application Development-related and other emerging technology offerings



$

234,646

 

 


$

189,119

 

 


24.1%

Adjustment for currency impact



8,903

 

 


 

 


 

Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis



$

243,549

 

 


$

189,119

 

 


28.8%

 



 

 


 

 


 

GAAP subscription revenue



$

814,952

 

 


$

711,521

 

 


14.5%

Adjustment for currency impact



24,110

 

 


 

 


 

Non-GAAP subscription revenue on a constant currency basis



$

839,062

 

 


$

711,521

 

 


17.9%

 



 

 


 

 


 

GAAP training and services revenue



$

119,159

 

 


$

102,009

 

 


16.8%

Adjustment for currency impact



5,240

 

 


 

 


 

Non-GAAP training and services revenue on a constant currency basis



$

124,399

 

 


$

102,009

 

 


21.9%

 



 

 


 

 


 

GAAP total revenue



$

934,111

 

 


$

813,530

 

 


14.8%

Adjustment for currency impact



29,350

 

 


 

 


 

Non-GAAP total revenue on a constant currency basis



$

963,461

 

 


$

813,530

 

 


18.4%


RED HAT, INC.

SUPPLEMENTAL INFORMATION

(Unaudited)

(In thousands)


Change in deferred revenue balances:



 


Deferred Revenue

 


Current

 

Long-Term

 

Total

Balance at May 31, 2018


$

1,721,300

 

 

$

723,207

 

 

$

2,444,507

 

Constant currency change in deferred revenue


332,502

 

 

77,143

 

 

409,645

 

Impact from foreign currency translation


(37,314

)

 

(19,307

)

 

(56,621

)

Balance at May 31, 2019


$

2,016,488

 

 

$

781,043

 

 

$

2,797,531

 

 


 

 

 

 

 

Year-over-year growth rate


17.1

%

 

8.0

%

 

14.4

%

Year-over-year growth rate on a constant currency basis


19.3

%

 

10.7

%

 

16.8

%

 


 

 

 

 

 


Revenue growth by geographical segment:

 


Americas

 

EMEA

 

APAC

 

Consolidated

Total revenue for the three months ended May 31, 2019


$

582,290

 

 

$

216,951

 

 

$

134,870

 

 

$

934,111

 

Adjustment for currency impact


5,786

 

 

17,523

 

 

6,041

 

 

29,350

 

Total revenue on a constant currency basis for the three months ended May 31, 2019


$

588,076

 

 

$

234,474

 

 

$

140,911

 

 

$

963,461

 

 


 

 

 

 

 

 

 

Total revenue for the three months ended May 31, 2018


$

500,306

 

 

$

195,148

 

 

$

118,076

 

 

$

813,530

 

 


 

 

 

 

 

 

 

Year-over-year growth rate


16.4

%

 

11.2

%

 

14.2

%

 

14.8

%

Year-over-year growth rate on a constant currency basis


17.5

%

 

20.2

%

 

19.3

%

 

18.4

%

 

Contacts

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

Investor Relations:
Kristen Zimmer
Red Hat, Inc.
kdemaria@redhat.com

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